<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 33-11062-D
UNITED SHIELDS CORPORATION
----------------------------------------------
(Name of small business issuer in its charter)
Colorado 84-1049047
- ------------------------------- ----------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
655 Eden Park Drive, Cincinnati, Ohio 45202
-------------------------------------------
(Address of principal executive offices, including zip code)
(513) 241-7470
---------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of October 30, 1997, 11,530,100 shares of common stock, no par value per
share, were outstanding.
Transitional Small Business Disclosure Format: Yes No X
--- ---
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UNITED SHIELDS CORPORATION
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements: Page
----
Consolidated Balance Sheets as of 3
September 30, 1997 and December 31, 1996
Consolidated Statements of Operations for 4
the Quarters Ended September 30, 1997 and
1996 and for the period from October 22, 1986
(Date of Inception) through September 30, 1997
Consolidated Statements of Operations for 5
the Nine Months Ended September 30, 1997 and
1996 and for the period from October 22, 1986
(Date of Inception) through September 30, 1997
Consolidated Statements of Cash Flows for 6
the Nine Months Ended September 30, 1997
and 1996 and for the period from October 22,
1986 (Date of Inception) through September 30, 1997
Notes to Consolidated Financial Statements 7
Item 2. Management's Plan of Operation 10
Part II. Other Information
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 17
2
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UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30 December 31
1997 1996
----------- ---------
CURRENT ASSETS
<S> <C> <C>
Cash $ 22,963 $ 107
Prepaid expense 15,398
Accounts receivable - officer 6,955 6,955
----------- ---------
Total current assets 45,316 7,062
FURNITURE AND FIXTURES, net 18,106 -
OTHER ASSETS
Deposits 3,628 -
Goodwill, net 48,055 -
Investments 715,000 -
Marketing agreement, net 66,667 81,667
----------- ---------
833,350 81,667
$ 896,772 $ 88,729
=========== =========
LIABILITIES
CURRENT LIABILITIES
Notes payable - stockholders $ 710,319 $ 79,919
Accounts payable 23,009 213,368
Accrued liabilities - interest 25,673 11,831
Payable to related party - -
----------- ---------
Total current liabilities 759,001 305,118
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock - authorized 500,000,000 shares without
par value; issued and outstanding 10,730,100 at
September 30, 1997 and 9,215,640 at December 31, 1996 1,031,066 63,102
Stock subscribed, not yet issued - 133,000
Additional paid-in capital - -
Deficit accumulated (893,295) (412,491)
----------- ---------
137,771 (216,389)
----------- ---------
$ 896,772 $ 88,729
=========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 3
<PAGE> 4
UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended From October 22, 1986
September 30 (Date of Inception) to
1997 1996 September 30, 1997
--------------- ------------- ------------------
<S> <C> <C> <C>
REVENUE:
Interest income $ 519 $ - $ 597
EXPENSES:
Advertising (550) 1,959
Amortization 5,833 5,000 50,278
Depreciation 218 723
Insurance 116 116
Interest 7,698 2,175 25,673
License 15,000 15,000
Marketing 4,529 4,529
Office 8,760 15,585
Payroll taxes 6,077 6,357
Professional fees 148,373 - 216,826
Public relations 2,010 - 19,510
Rent 9,605 11,285
Salaries 134,654 144,654
Telephone 1,953 4,117
Travel 5,153 - 8,914
Start-up costs - 35,674 106,864
Bottle purchase requirements - - 232,363
Payments to related parties - - -
Stock issued for services - - 28,100
Other 114 - 1,039
------------ --------- ---------
349,543 42,849 893,892
------------ --------- ---------
NET LOSS $ (349,024) $ (42,849) $(893,295)
============ ========= =========
NET LOSS PER COMMON SHARE (0.03)
============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 10,661,622
============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
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UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended From October 22, 1986
September 30, (Date of Inception) to
1997 1996 September 30, 1997
------------ --------- ----------------------
<S> <C> <C> <C>
REVENUE:
Interest income $ 597 $ - $ 597
EXPENSES:
Advertising 1,959 - 1,959
Amortization 16,945 15,000 50,278
Depreciation 723 - 723
Insurance 116 - 116
Interest 13,842 6,525 25,673
License 15,000 - 15,000
Marketing 4,529 - 4,529
Office 15,585 - 15,585
Payroll taxes 6,357 - 6,357
Professional fees 216,826 - 216,826
Public relations 19,510 - 19,510
Rent 11,285 - 11,285
Salaries 144,654 - 144,654
Telephone 4,117 - 4,117
Travel 8,914 - 8,914
Start-up costs - 42,208 106,864
Bottle purchase requirements - - 232,363
Payments to related parties - - -
Stock issued for services - - 28,100
Other 1,039 - 1,039
------------ --------- ---------
481,401 63,733 893,892
------------ --------- ---------
NET LOSS $ (480,804) $ (63,733) $(893,295)
============ ========= =========
NET LOSS PER COMMON SHARE (0.05)
=========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 10,614,203
===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 5
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UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended From October 22, 1986
September 30, (Date of Inception) to
1997 1996 September 30, 1997
--------- --------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(480,804) $ (63,733) $ (893,295)
Stock issued for services - - 28,100
Amortization 16,945 15,000 50,278
Depreciation 723 - 723
(Increase) in prepaid expense (15,398) - (15,398)
(Increase) in accounts receivable - - (6,955)
(Increase) in deposits (3,628) - (3,628)
Increase(decrease) in accounts payable (190,359) - 23,009
Increase in accrued expenses 13,842 6,525 25,673
Increase(decrease) in accounts payable stockholder - - -
--------- --------- -----------
Net operating activities (658,679) (42,208) (791,493)
CASH FLOWS FROM INVESTING ACTIVITIES
Goodwill - purchase of Capital 2000, Inc. (50,000) - (50,000)
Investments (155,000) (155,000)
Purchase of furniture and fixtures (18,829) - (18,829)
Acquisition of marketing agreement - - (115,000)
--------- --------- -----------
Net investing activities (223,829) - (338,829)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable stockholders 630,400 31,486 828,278
Payments on notes payable stockholders - - (117,959)
Proceeds from issuance of stock 407,964 - 442,966
Proceeds from stock subscribed (133,000) - -
Company accounts payable assumed
by stockholder - - -
--------- --------- -----------
Net financing activities 905,364 31,486 1,153,285
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH 22,856 (10,722) 22,963
Cash at beginning of period 107 11,966 -
--------- --------- -----------
Cash at end of period $ 22,963 $ 1,244 $ 22,963
========= ========= ===========
SUPPLEMENTAL DISCLOSURE OF NON CASH TRANSACTION
Increase in investments and common stock
due to shares issued in connection with
the proposed acquisition of Master Molders Inc. $ 560,000 $ - $ 560,000
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
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UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
September 30, 1997 (Unaudited)
(1) Condensed Financial Statements
The financial statements included herein have been prepared by United
Shields Corporation without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted as
allowed by such rules and regulations, and United Shields Corporation believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in
conjunction with the December 31, 1996 audited financial statements and the
accompanying notes thereto. While management believes the procedures followed in
preparing these financial statements are reasonable, the accuracy of the amounts
are in some respect's dependent upon the facts that will exist, and procedures
that will be accomplished by United Shields Corporation later in the year.
The management of United Shields Corporation believes that the
accompanying unaudited condensed financial statements contain all adjustments
(including normal recurring adjustments) necessary to present fairly the
operations and cash flows for the periods presented.
(2) Change in Control of The Company
Effective February 12, 1997, the Company acquired all of the
outstanding shares of United Shields Corporation ("USC") in exchange for
restricted shares of Common Stock (the "Exchange") pursuant to a Share Exchange
Agreement between the Company and USC. In connection with the Exchange, the
directors and officers of USC became the directors and officers of the Company.
After the Exchange, USC's shareholders own approximately 90% of the outstanding
Common Stock. Subsequently, the Company changed its name to United Shields
Corporation from Capital 2000, Inc.
(3) Issuance of Shares
In January, 1997, USC completed a private offering of 204,000 shares of
its common stock at $2.00 per share. Total proceeds of $408,000 were used to
fund operations.
In August, 1997, USC issued 140,000 shares of its common stock valued
at $4.00 per share. This stock was issued in connection with the execution of a
Merger Agreement to merger Master Molders, Inc. into a wholly-owned subsidiary
of USC. The issuance of the stock is non-refundable even if the merger does not
occur, except in very limited circumstances.
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UNITED SHIELDS CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Financial Statements
September 30, 1997 (Unaudited)
(4) Investments
USC has signed agreements to acquire three companies. The partial
payments made for these acquisitions are classified as Investments on the
balance sheet as of September 30, 1997.
The definitive agreement to acquire Master Molders, Inc. calls for a
total purchase price of $1,400,000. The agreement provided for a downpayment of
$25,000 cash and 140,000 shares of USC common stock valued at $560,000. The
downpayment is non-refundable except in very limited circumstances. A cash
payment of $815,000 for the balance of the acquisition price is due at closing.
The Agreement and Plan of Share Exchange to acquire The HeaterMeals
Company calls for a total purchase priceof $2,000,000. In addition, a payment of
$30,000 was made at the time of signing the letter of intent. The $2,000,000
purchase price is due at closing.
On September 22, 1997, USC signed a letter of intent to acquire R P
Industries, Inc. ("RPI") for a total purchase price of $9,300,000. A payment of
$100,000 was made at the time of signing the letter of intent. USC would issue
800,000 shares of common stock valued at $3,200,000 upon execution of a
definitive agreement.
(5) Related Parties
USC has borrowed funds from Ramsay-Hughes, Inc. to finance ongoing
operations. Ramsay-Hughes currently owns 1,397,720 shares of common stock of
USC. In addition, the directors and officers of Ramsay-Hughes own 230,210 shares
of Common stock. Mr. Richard Hughes, an officer of the company, is also a
director and shareholder of Ramsay-Hughes, Inc. USC borrowed $85,000 on December
12, 1995 and $66,568.70 on December 1, 1996 pursuant to two promissory notes,
both of which were due and payable on March 31, 1997. The $85,000 note bears
interest at the rate of 8% per annum; the other note does not bear interest. As
of September 30, 1997, the principal balance due to Ramsay-Hughes on these two
notes was $710,319, which Ramsay-Hughes has converted to payable on demand since
March 31, 1997. As of the date hereof, Ramsay-Hughes has not made a demand for
payment. On May 22, 1997, USC signed an open-ended promissory note with
Ramsay-Hughes to borrow up to $3,000,000 with interest at 12% per annum, due on
or before September 24, 1997. This note has been secured by the pledge of Mr.
T.J. Tully and certain of his family members of 3,000,000 shares of common
stock. As of September 30, 1997, USC had borrowed $710,319. The total principal
amount owed by USC to Ramsay-Hughes as of September 30, 1997 was $710,319 which
debt Ramsay-Hughes has converted to payable on demand. Ramsay-Hughes has agreed
to loan $170,000 to USC on October 31, 1997 for payment to The HeaterMeals
Company in connection with the extension of the closing date for the Agreement
and Plan of Share Exchange. In addition, Ramsay-Hughes has advised USC that it
may continue to loan funds against the open-ended promissory note for the
purpose of completing one or more acquisitions.
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USC's wholly-owned subsidiary acquired the rights to the Bottle by
assignment from Diverse Products Incorporated ("Diverse"). As consideration for
the assignment, the subsidiary agreed to pay Diverse $250,000 which was amended
to $0.05 for each Bottle sold by or through the subsidiary with a maximum of
$250,000. The consideration was subsequently reduced to $0.04 for each Bottle
sold by or through the subisdiary with a maximum of $200,000. In consideration
for this reduction, USC agreed to prepay (on behalf of the subsidiary) $40,000
of the $200,00 total, payable at the rate of $5,000 per month for eight months
beginning on July 30, 1997. The Company has made total payments of $15,000 as of
September 30, 1997. T.J. Tully and his brother, James F. Tully are the sole
shareholders, directors and officers of Diverse. T.J. Tully is a director,
Chairman of the Board, CEO and stockholder of USC and James F. Tully is a
stockholder of USC.
(6) New Accounting Pronouncement
In February 1997 the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share". The Company will implement the statement in the
fourth quarter of 1997, the effect of which has not yet been determined.
(7) Subsequent Event
Effective October 22, 1997, USC entered into a definitive agreement
with RPI to merge RPI into a wholly-owned subsidiary of USC. Upon execution of
the agreement, USC issued 800,000 shares of USC Common stock which shares are to
be held in escrow until the closing, provided that if USC fails to close on or
before December 22, 1997, then the shares will be released to the shareholders
of RPI unless the failure to close was as a result of either a material breach
by RPI of the agreement, or by the inability of RPI to obtain the approval of
the merger by the shareholders of RPI. In addition, the number of shares held in
escrow is required to be increased proportionately to the extent that the per
share price of USC's Common stock is less than $4.00 on the closing Date. The
balance of the Purchase Price, $6,000,000 cash less the amount of bank
indebtedness assumed by USC's subsidiary is to be paid on the Closing Date.
Page 9
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FORWARD-LOOKING STATEMENTS
The following description of "Management's Plan of Operation"
constitutes forward- looking statements for purposes of the Securities Act of
1933 and the Securities Exchange Act of 1934, as amended, and as such involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. The words "expect," "estimate,"
"anticipate," "predict," and similar expressions are intended to identify
forward-looking statements. Important factors that could cause the actual
results, performance or achievement of the Company to differ materially from the
Company's expectations include the following: 1) one or more of the assumptions
or other factors discussed in connection with particular forward-looking
statements prove not to be accurate; 2) the Company is unsuccessful in
increasing sales through its anticipated marketing efforts; 3) mistakes in cost
estimates and cost overruns; 4) the Company's inability to obtain financing for
one or more acquisitions and/or for general operations including the marketing
of the Bottle; 5) the Company's inability to establish a successful alliance
with a major marketer to the supermarket and convenience store markets; 6) the
Company's inability to obtain significant shelf space in supermarkets and
convenience stores due to competition for space by all food products,
requirements to sell through specific distributors, commission or other rate
structures which prevent the Company from achieving adequate profit margins and
other similar factors; 7) non-acceptance of one or more products of the Company
in the marketplace due to costs or other reasons; 8) the Company's inability to
supply any product to meet market demand; 9) generally unfavorable economic
conditions which would adversely affect purchasing decisions by retailers or
consumers; 10) development of a similar competing product with the Bottle and/or
HeaterMeals(R) which is not an infringement of any of the patents pertaining to
those products; 11) inability of the owner of any of the patents to protect
against infringement; 12) the inability to successfully integrate one or more
acquisitions with USC's operations (including the inability to successfully
integrate several acquisitions at the same time, integrate businesses which may
be diverse as to type of business, geographic area, or customer base and the
diversion of management's attention among several acquired businesses) without
substantial costs, delays or other problems; 13) the Company experiences labor
and/or employment problems such as work stoppages, inability to hire and/or
retain competent personnel, etc.; 14) a shortage in the supply of significant
raw materials, such as resin and magnesium, which would significantly increase
the cost of goods sold; and 15) the Company experiences unanticipated problems
(including but not limited to accidents, fires, acts of God, etc.), or is
adversely affected by problems of its suppliers, shippers, customers or others.
All written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by such factors.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
United Shields Corporation (the "Company") intends to operate as a
holding and marketing company, acquiring operating companies engaged in beverage
and beverage packaging, food and food packaging and manufacturing of plastic
containers and products. The Company's objective is to acquire operating
companies that will complement the Company's business(es) and increase the
Company's asset and revenue base. The Company has entered into
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definitive agreements to acquire Master Molders, Inc. ("Master Molders"), The
HeaterMeals Company ("THC"), and R.P. Industries, Inc. ("RPI") (collectively the
"Planned Acquisitions"). The Company intends to continue to identify and
evaluate other potential acquisition candidates involved in plastics
manufacturing, production, packaging, distribution and/or production of various
consumer beverage or food products. The Company is presently engaged in
negotiations to acquire several companies. Management expects that it is
possible that in the fourth quarter of 1997 the Company will enter into
additional letters of intent to acquire some of those companies. Acquisitions
may involve a number of risks some of which could have a material adverse effect
on the Company's operations and financial results including, without limitation:
the ability to successfully integrate several acquisitions at the same time (if
the Company is able to acquire several companies within a short period of time);
the ability to integrate businesses which may be diverse as to type of business,
geographic area, or customer base; the diversion of management's attention among
acquired businesses and in seeking additional acquisition opportunities;
dependence on retaining, hiring and training key personnel; and adverse
short-term effects on operating results and amortization of acquired intangible
assets. There can be no assurance that the Company will be successful in
consummating the acquisition of candidates or in integrating acquired
businesses.
Manufacturing of Plastic Containers and Products
To create vertically integrated operations, the Company intends to
acquire manufacturing facilities which produce bottles and containers for the
Company's anticipated beverage and food products. In addition to providing
packaging for the Company's beverage and food products, any such companies
acquired would likely provide parts and products to other, manufacturers and
consumer markets as a source of additional revenue. On August 7, 1997, the
Company signed a definitive agreement (the "Master Molders Agreement") with
Master Molders, Inc., a South Carolina-based manufacturer of custom plastic
industrial parts ("Master Molders"), to merge Master Molders with and into a
wholly-owned subsidiary of the Company (the "MMI Acquisition"). In connection
with the MMI Acquisition, the Company paid $25,000 and issued 140,000 shares of
Common Stock to Master Molders' shareholders, William Smetana and Edward Bonin,
which consideration is non-refundable except in very limited circumstances. The
balance of the purchase price, $815,000 cash, is to be paid to Messrs. Smetana
and Bonin upon closing of the Acquisition, which is expected to occur on or
before November 15, 1997. Messrs. Smetana and Bonin now serve as the Company's
Vice President of Production and Vice President of Engineering and Quality
Control, respectively.
Effective October 22, 1997, the Company entered into a definitive
agreement with R.P. Industries, Inc. ("RPI"), to merge RPI with a wholly-owned
subsidiary of the Company. RPI manufactures thermoplastic resin products. RPI
has two manufacturing facilities, one located in Chester, Virginia and the other
near Durham, North Carolina. Upon execution of the letter of intent with RPI,
the Company paid $100,000 in cash to RPI's shareholders. Upon execution of the
definitive agreement, the Company issued 800,000 shares of Common Stock to RPI
for the benefit of its shareholders, which shares are to be held in escrow until
the closing, provided that if the Company fails to close on or before December
22, 1997, then the shares will be released to the shareholders of RPI unless the
failure to close is a result of either a material breach by RPI of the
definitive agreement, or the inability of RPI to obtain the approval of the
merger by the shareholders of RPI. In addition, the number of shares held in
escrow is required to be increased proportionately to the extent that the per
share price of the Common Stock is less
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than $4.00 on the closing date. The balance of the purchase price, $6,000,000
cash less the amount of bank indebtedness assumed by the wholly-owned subsidiary
of the Company is to be paid on the closing date.
Food and Food Packaging
On September 12, 1997, the Company signed an Agreement and Plan of
Share Exchange (the "HeaterMeals Agreement") to acquire all of the outstanding
common stock of THC, an Ohio-based manufacturer and packager of electrochemical
heaters and packaged food products. THC manufactures a line of shelf-staple
meals with a patented self-heating device under the trade name of HeaterMeals(R)
and also markets separately self-heating devices. To date, most of the revenues
of THC have been generated from sales of a self-heating device to government
contractors (called a flameless ration heater, or FRH) who incorporate the FRH
into the "meals-ready-to-eat" which are sold to the military for use by
soldiers in the field. The Company's objective will be to expand the marketing
and sales of the HeaterMeals(R) shelf-staple meals to consumers. The Company
expects to create meals for the HeaterMeals(R) line that are more appealing to
consumers and redesign packaging of the meals. The Company believes that the
convenience of the self-heating feature of the meals and the redesign of the
meals will enable the Company to broaden the consumer marketing of HeaterMeals.
Additionally, the Company expects to conduct further research in an attempt to
commercially exploit the chemical reaction that results in self-heating of the
meals for other applications.
The $2,000,000 purchase price under the HeaterMeals Agreement is due
upon closing, which has been extended from October 15, 1997 to November 15,
1997. Upon execution of the letter of intent, the Company paid $30,000 to THC.
In connection with the extension of the date of closing, the Company agreed to
pay $170,000 on or before October 31, 1997 to THC which funds are required to be
used to reduce THC's bank indebtedness.
Beverage and Beverage Packaging
As previously reported, the Company, through its wholly-owned
subsidiary ("Subsidiary"), obtained exclusive worldwide marketing rights for a
patented collapsible plastic bottle (the "Bottle") for retail/consumer sale of
water and water-based beverages and pre-packed powdered instant drink mixes. The
Company believes that the marketing potential for the Bottle is that it would
significantly reduce the costs associated with manufacturing, distributing and
marketing bottled beverages. The primary benefit of the Bottle is that it can be
shipped and stored in its collapsible state and water can be added to it
manually, without the use of special equipment. The Company believes that the
convenience of being able to add water to the Bottle at any stage in the sales
and distribution chain will enable the Company to market the Bottle for a
variety of uses.
Financing Management's Plan of Operation
The Company has borrowed funds from Ramsay-Hughes, Inc.
("Ramsay-Hughes") to finance ongoing operations while the Company is seeking
acquisition candidates and pursuing the necessary financing to complete those
acquisitions. Ramsay-Hughes is a Cincinnati-based merchant banking firm which
invests in various companies, including the Company. Ramsay-
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Hughes currently owns 1,397,720 shares of Common Stock of the Company. In
addition, the directors and officers of Ramsay-Hughes own 230,210 shares of
Common Stock. The Company has borrowed funds from Ramsay-Hughes to finance
ongoing operations while the Company is seeking acquisition candidates and
pursuing the necessary financing to complete those acquisitions. The Company
borrowed from Ramsay-Hughes $85,000 on December 12, 1995 and $66,568.70 on
December 1, 1996 pursuant to two promissory notes, both of which were due and
payable on March 31, 1997. The $85,000 note bears interest at the rate of 8% per
annum; the other note does not bear interest. As of October 20, 1997, the
principal balance due to Ramsay-Hughes on these two notes was $63,318.70, which
Ramsay-Hughes has converted to payable on demand since March 31, 1997. As of the
date hereof, Ramsay-Hughes has not made a demand for payment. On May 22, 1997,
the Company signed an open-ended promissory note with Ramsay-Hughes to borrow up
to $3,000,000, with interest at 12% per annum, due on or before September 24,
1997. This note has been secured by the pledge by Mr. T. J. Tully and certain of
his family members of 3,000,000 shares of Common Stock. As of September 30, the
Company had borrowed $710,319.00. The total principal amount owed by the Company
to Ramsay-Hughes as of September 30, 1997 was $710,319.00, which debt
Ramsay-Hughes has converted to payable on demand. Ramsay-Hughes has agreed to
loan $170,000 to the Company on October 31, 1997 for payment to THC in
connection with the extension of the closing date for the HeaterMeals Agreement.
In addition, Ramsay-Hughes has advised the Company that it may continue to loan
funds against the open-ended promissory note for the purpose of completing one
or more of the Planned Acquisitions.
Ramsay-Hughes has advised the Company that it presently does not intend
to demand payment on its outstanding loans so long as the Company is pursuing a
business strategy which is consistent with Ramsay-Hughes investment in the
Company. However, Ramsay-Hughes has reserved the right to demand payment at any
time and advised the Company that it would demand repayment of some or all of
its loans at such time as the Company secures other debt financing and/or equity
financing necessary to complete the Planned Acquisitions and provide adequate
working capital for its business operations.
Mr. Richard Hughes, an officer of the Company, is also a director and
shareholder of Ramsay-Hughes, Inc.
The Company is currently seeking a combination of debt and equity
financing to complete the Planned Acquisitions and provide needed working
capital. There is no assurance that the Company will be successful in obtaining
such financing.
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PART II
ITEM 5. OTHER INFORMATION
On October 1, 1997, John Richard Pierce, Jr. resigned as a Director of
the Company. Mr. Pierce's resignation was not due to a disagreement with the
Company on any matter relating to the Company's operations, policies or
practices.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits Filed Herewith
-------- (Page #) or
Incorporated by
Reference to:
---------------
<S> <C> <C>
2 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.1 Agreement dated August 7, 1997 between Exhibit 10(1)(a)(14) to
Master Molders, Inc. and the Company the Company's Form
10-QSB for the quarter
ended June 30, 1997
2.2 Agreement and Plan of Share Exchange by and Exhibit 2.1 to the
between The HeaterMeals Company and United Company's Form 8-K
Shields Corporation dated September 12, 1997 dated September 12,
1997
2.3 Merger Agreement by and among R.P. E-1 - E-34
Industries, Inc. and United Shields Corporation
and its wholly owned subsidiary dated October
22, 1997
3(a) Articles of Incorporation
3.1 Articles of Incorporation Exhibit 3.1 to the
Company's Registration
Statement
(No. 33-11062-D)
3.1(a) Articles of Amendment to the Articles of Exhibit 3.1(a) to the
Incorporation dated March 15, 1995 Company's Form 10-
KSB for the year ended
December 31, 1995
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Filed Herewith
(Page #) or
Incorporated by
Reference to:
---------------
<S> <C> <C>
3.1(b) Articles of Amendment to the Articles of Exhibit 3.1(b) to the
Incorporation dated February 26, 1996 Company's Form 10-K
SB for the year ended
December 31, 1995
3.1(c) Articles of Amendment to the Articles of Exhibit 3(a)(4) to the
Incorporation dated May 21, 1997 Company's Form 10-
QSB for the quarter
ended June 30, 1997
3(b) By-laws
3.2 Bylaws of the Company Exhibit 3.2 to the
Company's Registration
Statement
(No. 33-11062-D)
10(i) Material Agreements
10.1 Management Agreement dated August 7, 1997 Exhibit 10(1)(a)(14) to
between Master Molders, Inc. and the Company the Company's Form
10-QSB for the quarter
ended June 30, 1997
10.2 Letter of Intent between R.P. Industries, Inc. Exhibit 10.1 to the
and United Shields Corporation dated Company's Form 8-K
September 22, 1997 dated September 12,
1997
10.3 Management Agreement by and between R.P. E-35 - E-40
Industries, Inc. and United Shields Corpoation
and its wholly owned subsidiary dated October
22, 1997
10.4 Employment Agreement by and between United E-41 - E-48
Shields Corporation and Donald T. Zimmerman
dated September 30, 1997
27 Financial Data Schedule E-49
</TABLE>
15
<PAGE> 16
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated September 12, 1997,
reporting (i) signing a definitive agreement to acquire all of the outstanding
stock of The HeaterMeals Company, an Ohio-based manufacturer and packager of
electrochemical heaters and packaged food products, and (ii) entering into a
letter of intent with R.P. Industries, Inc. ("RPI") to acquire directly, or
indirectly through a subsidiary, all of the stock of RPI, a Virginia-based
injection molding company, or, to merge with RPI either directly, or indirectly
through a subsidiary. The Company also filed a report on Form 8-K dated August
7, 1997, reporting (i) signing a definitive agreement to acquire all of the
stock of Master Molders, Inc. ("Master Molders"), a South Carolina-based
manufacturer of plastic industrial parts pursuant to a merger of Master Molders
with and into a wholly-owned subsidiary of the Company and (ii) addition of
personnel to the Company's management.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNITED SHIELDS CORPORATION
By: /s/ T. J. Tully
-----------------------------------------
T. J. Tully, Chairman of the Board and
Chief Executive Officer
/s/ Beverley R. Gill
---------------------------------------------
Beverley R. Gill, Chief Financial Officer
Dated: October 24, 1997
17
<PAGE> 18
MERGER AGREEMENT
----------------
THIS AGREEMENT (the "AGREEMENT") is made as of this 22nd day
of October 1997, by and among R.P. INDUSTRIES, INC., a Virginia corporation
("COMPANY"), and UNITED SHIELDS CORPORATION, a Colorado corporation ("USC"), and
its wholly owned subsidiary to be designated later (the "SUBSIDIARY").
WHEREAS, USC desires to cause Subsidiary to acquire the
business of Company (the "BUSINESS") as a going concern in exchange for an
aggregate total of (i) 800,000 authorized shares of the common stock, no par
value, of USC (the "COMMON STOCK"), subject to the issuance of additional shares
of Common Stock as provided in Section 1.8 hereof, and (ii) a cash payment in
the amount of $6,100,000 less the amount of Company's indebtedness for borrowed
money outstanding on the Closing Date. The consideration described in clauses
(i) and (ii) is hereinafter collectively referred to as the "MERGER
CONSIDERATION." As of the date hereof, $100,000 of the cash payment described in
clause (ii) has been paid to Company on a nonrefundable basis; and
WHEREAS, the parties will achieve the sale of the Business
contemplated hereunder through the merger of Company with and into Subsidiary
(the "MERGER"), which the parties hereto intend to treat as a qualified
reorganization under Internal Revenue Code ("IRC") Sections 368(a)(1)(A) and
368(a)(2)(D).
NOW, THEREFORE, in consideration of the mutual promises,
covenants, and representations contained herein, THE PARTIES HERETO AGREE AS
FOLLOWS:
ARTICLE I
THE MERGER
----------
Section 1.1 INTERIM MEASURES. During the period after
execution of this Agreement and before Closing (as provided in Article
VII), Company and USC shall have entered into a Management Agreement
simultaneously with execution of this Agreement that provides USC
access to Company's financial data and authority over substantial
expenditures and material management decisions. Such Management
Agreement will terminate on the Closing Date.
Section 1.2 THE MERGER. In accordance with the Virginia Stock
Corporation Act (the "VSCA") and the corporate code of Subsidiary's
State of Incorporation (the "SCL"), at the Effective Time, defined
below, Company shall be merged with and into Subsidiary pursuant to the
Plan of Merger attached hereto as EXHIBIT A. As a result of the Merger,
the separate corporate existence of Company shall cease and Subsidiary
shall continue as the surviving corporation and shall succeed
E-1
<PAGE> 19
to and assume all of the rights and obligations of Company. The Merger
shall occur as soon as practical following the satisfaction or waiver
of the conditions set forth in Articles V and VI hereof.
Section 1.3 CONSUMMATION OF MERGER. The Merger shall be
consummated by filing with (a) the State Corporation Commission of the
Commonwealth of Virginia of Articles of Merger in such form as is
required by, and executed in accordance with, the relevant provisions
of the VSCA, together with such other documents as may be required by
the relevant provisions of the VSCA, and (b) the Secretary of State of
Subsidiary's State of Incorporation a Certificate of Merger in such
form as is required by, and executed in accordance with, the relevant
provisions of the SCL, together with such other documents as may be
required by the SCL. The Merger shall become effective (the "EFFECTIVE
TIME") at the later of (i) the time of issuance by the State
Corporation Commission of the Commonwealth of Virginia and (ii) the
time of issuance by the Secretary of State of Subsidiary's State of
Incorporation of certificates of merger with respect to the Merger, and
shall have the effects set forth in Section 13.1-721 of the VSCA, the
relevant provisions of the SCL and in the Plan of Merger (but in no
event shall the Effective Time occur at any time after the Closing
Date).
Section 1.4 ARTICLES OF INCORPORATION; BYLAWS. The Articles of
Incorporation and Bylaws of Subsidiary shall be restated in their
entirety as attached to the Certificate of Merger and shall continue in
effect until amended as provided therein and by law.
Section 1.5 CANCELLATION OF STOCK. As of the Effective Time,
all shares of Company ("SHARES") shall automatically be canceled and
retired and shall convert into the right to receive such holder's
appropriate portion of the Merger Consideration set forth in Section
1.8.
Section 1.6 WARRANTS AND OTHER SECURITIES. As of the Effective
Time, the stock options of Company held by Granville G. Valentine, III
to acquire 110,000 Shares shall, to the extent not theretofore
exercised, automatically be canceled and retired and, subject to
receipt of shareholder approval meeting the requirements of IRC Section
280G(b)(5)(B) or waiver of such approval by Company, shall convert into
the right to receive the appropriate portion of the Merger
Consideration set forth in Section 1.8 that relates to such Shares less
the aggregate exercise price that would be payable upon exercise of
such stock options. All other warrants, options, phantom stock,
convertible securities or any other rights to acquire shares of common
stock of Company, if any such rights exist, shall be canceled and
extinguished at the Effective Time without any conversion thereof and
no payment shall be made with respect thereto.
Section 1.7 DISSENTING SHARES. Notwithstanding Section 1.8,
Shares outstanding immediately prior to the Effective Time and held by
a holder who has not voted in favor of the Merger or consented thereto
in writing and who has demanded appraisal for such Shares in accordance
with the VSCA shall not be converted into a right to receive the Merger
Consideration, unless such holder fails to perfect or
E-2
<PAGE> 20
withdraws or otherwise loses such holder's right to appraisal. If,
after the Effective Time, such holder fails to perfect or withdraws or
loses such holder's right to appraisal, such Shares shall be treated as
if they had been converted as of the Effective Time into a right to
receive the Merger Consideration payable in respect of such Shares
pursuant to Section 1.8.
Section 1.8 CONSIDERATION.
(a) Subject to all of the terms and conditions of this
Agreement, USC agrees, upon execution of this Agreement, to deliver to
Company, in escrow for the benefit of the participating Shareholders of
Company on a pro rata basis, 800,000 shares of USC's Common Stock.
Additionally, USC will pay to the participating Shareholders of Company
their pro rata portions of a cash payment of $6,100,000 (of which
$100,000 has heretofore been paid and the remainder shall be paid at
Closing) less the amount of Company's indebtedness for borrowed money
outstanding as of the Closing Date. The payment of the Merger
Consideration shall be subject to the rights of dissenting
shareholders. The $100,000 cash payment and the 800,000 shares of USC
common stock are nonrefundable and shall be retained by the
Shareholders of Company should the transactions contemplated hereunder
fail to be consummated on or prior to the Closing Date unless such
failure is a direct result of Company's material breach of this
Agreement or as a result of the failure of the Shareholders of the
Company to approve the Merger as required by applicable law or the
Company's Articles of Incorporation.
(b) In addition, if on the date of the Effective Time the
total fair market value of the 800,000 shares of USC Common Stock is
less than 40 percent of the Merger Consideration, USC shall issue as
additional Merger Consideration an additional number of shares of its
Common Stock so that such additional number of shares plus the 800,000
shares of USC Common Stock constitute (based on their fair market
value) 40 percent of the total Merger Consideration. For this purpose,
the fair market value per share of USC Common Stock shall be (i) the
average of the high and low quoted selling prices per share on the date
of the Effective Time, (ii) if there are no sales of USC Common Stock
on such date, the weighted average of the high and low quoted selling
prices per share for the nearest date before and the nearest date after
the date of the Effective Time on which sales occur, provided that each
such date must be within five business days of the date of the
Effective Time, such average to be weighted inversely by the number of
business days between the selling date and the date of the Effective
Time, or (iii) if there are no sales of USC Common Stock on the date of
the Effective Time or within five business days before and five
business days after the date of the Effective Time, the average of the
bona fide quoted bid and asked prices per share on the date of the
Effective Time. USC shall issue additional shares of USC Common Stock,
if any, within ten calendar days after the date of the Effective Time
to the Shareholders of the Company (except any dissenting shareholders)
in accordance with their percentage ownership of Shares of Company
Common Stock immediately before the Effective Time. For purposes of the
preceding 40 percent test, the fair market value of shares of USC
Common Stock distributable to dissenting shareholders but for the
exercise of dissenters' rights shall not be included in the total
E-3
<PAGE> 21
fair market value of USC Common Stock constituting part of the Merger
Consideration but instead shall be treated as part of (and added to)
the cash portion of the Merger Consideration.
Section 1.9 SPECIAL MEETING. Company, acting through its Board
of Directors, shall, subject to the fiduciary duties of such Board of
Directors under applicable law as advised by counsel and in accordance
with applicable law, duly call, give notice of, convene and hold a
special meeting (the "SPECIAL MEETING") of the Shareholders of Company
(the "SHAREHOLDERS") as soon as practicable following the execution of
this Agreement for the purpose of considering and taking action upon
the Merger.
Section 1.10 REGISTRATION OF COMMON STOCK.
(a) If at any time USC proposes to register any of its Common
Stock under the Securities Act of 1933, as amended (the "SECURITIES
ACT") in connection with the public offering of such securities
pursuant to a registration statement filed, or to be filed, with the
Securities and Exchange Commission (the "SEC"), USC shall, each such
time, promptly give each holder of Registrable Stock (as defined below)
written notice of such determination. Upon the written request of any
holder of Registrable Stock, given within 10 days after mailing of any
such notice by USC, USC shall cause to be registered under the
Securities Act all of the Registrable Stock that each such holder has
requested be registered. If the total amount of securities that all
holders of Registrable Stock request to be included in such offering
exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, USC shall only be
required to include in the offering so many of the securities of the
selling holders as the underwriters believe will not jeopardize the
success of the offering (the securities so included to be apportioned
pro rata among the selling holders of Registrable Stock according to
the total amount of securities owned by said selling holders, or in
such other proportions as shall mutually be agreed to by such selling
holders), provided that no such reduction shall be made with respect to
any securities offered by USC for its own account. USC agrees to use
its good faith best efforts to have such registration statement
declared effective within 90 days of the date of filing such
registration statement. As used herein, "REGISTRABLE STOCK" shall mean,
collectively, (i) the 800,000 shares of Common Stock to be issued by
USC pursuant to Section 1.8(a) and (ii) the additional shares of Common
Stock of USC, if any, issued under Section 1.8(b).
(b) If USC has not filed a registration statement under the
Securities Act with the SEC as to all or part of the Registrable Stock
on or before March 31, 1998, as set forth in paragraph (a) above, then
USC agrees that any Registrable Stock not so included in a registration
statement shall be registered by USC under the Securities Act pursuant
to a shelf registration statement filed with the SEC on or before June
30, 1998. USC agrees to use its good faith best efforts to have such
registration statement declared effective within 90 days of the date of
filing such shelf registration statement.
(c) If any shares of the Registrable Stock have not been
registered by USC as set forth in either paragraph (a) or paragraph (b)
above, then each holder of such shares of
E-4
<PAGE> 22
Registrable Stock shall have the right (the "Put") which each such
holder shall exercise by giving written notice to USC, to sell to USC,
and, upon exercise of such right, USC shall have the obligation to
purchase from such holders all such shares of Registrable Stock subject
to such Put at a price of $5.10 per share of Registrable Stock. The
payment for such shares of Registrable Stock shall be made within five
business days of the exercise of the Put. The holders of Registrable
Stock shall have the right to exercise the Put rights set forth herein
until the earlier of (i) the date on which the shares of Registrable
Stock are registered by USC as set forth in paragraph (a) or paragraph
(b) above or (ii) the first anniversary of the Closing Date.
(d) USC's obligations under this Section 1.10 shall survive
the termination of this Agreement (other than a termination that
results from Company's material breach hereunder). All expenses
incurred in connection with a registration pursuant to this Section
1.10 (excluding underwriters' discounts and commissions), including
without limitation all registration and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for USC and the
reasonable fees and disbursements of one counsel for the selling
holders, shall be borne by USC.
(e) To the best knowledge of the Company, no Shareholder of
the Company has the present intention to sell or otherwise dispose of
the USC Common Stock to be issued pursuant to the Merger, which stock
on the Closing Date will not have been registered under the Securities
Act, or registered or otherwise qualified for sale under any applicable
state securities law. In recognition of the fact that due to a change
in circumstances or other events beyond the control of the Shareholders
of the Company, the Shareholders may at some point need to sell some or
all of said stock, the Company and USC have agreed to the registration
rights provided for in this Section 1.10.
(f) As a condition to receipt by the Shareholders of Common
Stock on the Closing Date, each Shareholder not dissenting to the
Merger shall execute an investment intent letter substantially in the
form(s) attached hereto as EXHIBIT B.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
-----------------------------------------
Including the disclosures made on SCHEDULE 2 which is attached hereto
and incorporated herein by reference, Company hereby represents and warrants to
USC that:
Section 2.1 ORGANIZATION. Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
Commonwealth of Virginia, has all necessary corporate powers to own its
properties and to carry on its business as now owned and operated by
it, and is duly qualified to do business and is in good standing in
each of the jurisdictions where its business requires qualification.
E-5
<PAGE> 23
Section 2.2 CAPITALIZATION. The authorized capital stock of
Company consists of 10,000,000 shares of $0.01 par value common stock,
of which 1,044,080 shares are currently issued and outstanding. A list
of the Shareholders of the Company is set forth on SCHEDULE 2. All of
the issued and outstanding shares of Company are duly authorized,
validly issued, fully paid, and nonassessable. Other than as disclosed
on SCHEDULE 2, there are no outstanding subscriptions, options, rights,
warrants, debentures, instruments, convertible securities, or other
agreements or commitments obligating Company to issue any additional
shares of its capital stock of any class.
Section 2.3 SUBSIDIARIES. Company owns the subsidiaries listed
on SCHEDULE 2 and no others.
Section 2.4 DIRECTORS AND OFFICERS. SCHEDULE 2 contains the
names and titles of all directors and officers of Company as of the
date of this Agreement.
Section 2.5 DISPOSITION OF COMMON STOCK. There is no plan or
intention by the Shareholders of Company who own 1 percent or more of
its stock, and to the best of the knowledge of the management of
Company, there is no plan or intention on the part of the remaining
Shareholders of Company to sell, exchange or otherwise dispose of a
number of shares of the Common Stock received in this transaction that
would reduce Company Shareholders' ownership of Common Stock to a
number of shares having a value, as of the date of the transaction, of
less than 40 percent of the value of all of the formerly outstanding
stock of Company as of the same date. For the purposes of this
representation, shares of Company stock exchanged for cash or other
property or surrendered by dissenters will be treated as outstanding
Company stock on the date of the transaction. Moreover, Shares of
Company Common Stock and shares of USC Common Stock held by Company
Shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this
representation, but gifts of Shares of Company Common Stock to or for
the benefit of any organization described in IRC Section 501(c)(3)
before the date of the Special Meeting will not be taken into account.
Section 2.6 NO INVESTMENT COMPANY. Company is not an
investment company as defined in IRC Section 368(a)(2)(F)(iii) and
(iv).
Section 2.7 NO COURT JURISDICTION. Company is not under the
jurisdiction of a court in a Title 11 or similar case within the
meaning of IRC Section 368(a)(3)(A).
Section 2.8 FINANCIAL STATEMENTS. Company has delivered to USC
its audited balance sheets and related statements of income and cash
flow as of July 31, 1997 and 1996 (the "COMPANY FINANCIAL STATEMENTS").
Company Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods indicated. Company Financial Statements accurately set out and
describe the financial condition of Company as of July 31, 1997. The
debt reflected thereon was all incurred for business purposes.
E-6
<PAGE> 24
Section 2.9 ABSENCE OF CHANGES. Since July 31, 1997, except
for changes in the ordinary course of business which have not in the
aggregate been materially adverse, to the best of Company's knowledge,
Company has conducted its business only in the ordinary course and has
not experienced or suffered any material adverse change in the
condition (financial or otherwise), results of operations, properties,
business or prospects or waived or surrendered any claim or right of
material value.
Section 2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Neither
Company nor any of its properties or assets are subject to any material
liabilities or obligations of any nature, whether absolute, accrued,
contingent or otherwise and whether due or to become due, that are not
reflected in the financial statements presented to USC or have
otherwise been disclosed to USC (other than those incurred in the
ordinary course of business since July 31, 1997 and consistent with
past practice).
Section 2.11 THRESHOLD VALUES. Company will transfer to
Subsidiary pursuant to the Merger at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by Company immediately prior to
the Effective Time. For purposes of this representation, amounts paid
by Company to dissenters, amounts paid by Company to Shareholders who
receive cash or other property, Company assets used to pay its
reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by Company immediately preceding
the Merger, will be included as assets of Company held immediately
prior to the Merger.
Section 2.12 TAX RETURNS. Except as set forth in Schedule 2,
within the times and in the manner prescribed by law, Company has filed
all federal, state and local tax returns required by law, or has filed
extensions which have not yet expired, and has paid all taxes,
assessments and penalties due and payable.
Section 2.13 INVESTIGATION OF FINANCIAL CONDITION. Without in
any manner reducing or otherwise mitigating the representations
contained herein and subject in all respects to the confidentiality
agreement between Company and USC, dated August 12, 1997, USC and/or
its attorneys shall have the opportunity to meet with accountants and
attorneys to discuss the financial condition of Company, which shall
make available to USC and/or its attorneys all books and records of
Company.
Section 2.14 INTELLECTUAL PROPERTY. SCHEDULE 2 sets forth a
complete and accurate schedule containing all of Company's (i)
registered trademarks and service marks, and trademark and service mark
applications, including county of filing, filing number, date of issue
and expiration date used in the business of Company; (ii) all
registered copyrights; and (iii) patents and patent rights. Except as
set forth in SCHEDULE 2, to Company's knowledge, no third party has
asserted, or threatened to assert against Company or any of its
officers or directors any conflicting rights to any such intellectual
property and Company has no knowledge of facts that Company believes
could reasonably be expected to give rise to such a claim.
E-7
<PAGE> 25
Section 2.15 ENVIRONMENTAL COMPLIANCE. Except as described on
SCHEDULE 2 and in the Reports titled "Phase I Assessment; Richmond
Plastics; 1351 West Hundred Road, Chesterfield County, Virginia (August
18, 1997)" and "Phase I Environmental Site Assessment; Granville
Plastics; 115 Corporation Drive, Oxford, North Carolina (August 15,
1997)" prepared by Schnabel Engineering and to the best of Company's
knowledge and belief:
(a) During the period that Company has leased or owned its
properties or owned or operated any facilities, there have been no
disposals, releases or threatened releases of Hazardous Materials (as
defined below) on, from or under such properties or facilities. Neither
Company nor any of its officers or directors has any knowledge of any
presence, disposals, releases or threatened releases of Hazardous
Materials on, from or under any of such properties or facilities, which
may have occurred prior to Company having taken possession of any of
such properties or facilities. For purposes of this Agreement, the
terms "disposal," "release," and "threatened release" shall have the
definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section
9601 et seq., as amended ("CERCLA"). For the purposes of this Section,
"Hazardous Materials" shall mean any hazardous or toxic substance,
material or waste which is or becomes prior to the Closing Date
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic
substance," or "hazardous chemical" under (1) CERCLA; (2) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Section 11001 ET
SEQ.; (3) the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, ET SEQ.; (4) the Toxic Substances Control Act, 15 U.S.C. Section
2601 ET SEQ.; (5) the Occupational Safety and Health Act of 1970, 29
U.S.C. Section 651 ET SEQ.; (6) regulations promulgated under any of
the above statutes; or (7) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to
those statutes identified above.
(b) None of Company's properties or facilities is in violation
of any federal, state, or local law, ordinance, regulation, or order
relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not
limited to, soil and ground water condition. During the time that
Company has owned or leased its properties and facilities, neither
Company nor, to Company's knowledge, any third party, has used,
generated, manufactured or stored on, under or about such properties or
facilities or transported to or from such properties or facilities any
Hazardous Materials.
(c) During the time that Company has owned or leased its
properties and facilities, there has been no litigation brought or
threatened against Company, or any settlement reached by Company with,
any party or parties alleging the presence, disposal, release or
threatened release of any Hazardous Materials on, from or under any of
such properties or facilities.
(d) During the period that Company has owned or leased its
properties and facilities, no Hazardous Materials have been transported
from such properties or facilities to any site or facility now listed
or proposed for listing on the National Priorities List, at 40 C.F.R.
Part 300, or any list with a similar scope or purpose published by any
state authority.
E-8
<PAGE> 26
Section 2.16 EMPLOYEE PLANS. To the best of Company's
knowledge, Company has been and is in compliance with any and all
requirements of the Employment Retirement Income Security Act of 1974,
as amended, with respect to all its retirement and welfare plans which
are subject to such requirements. There are no liabilities with respect
to terminated plans and there have been no withdrawals of funds from
any such plan except payments to participants and beneficiaries which
were required by such plans. Schedule 2 describes certain salary
continuance arrangements that Company has with certain employees of
Company.
Section 2.17 COMPLIANCE WITH LAWS. To the best of Company's
knowledge, Company has complied with, and is not in violation of,
applicable federal, state or local statutes, laws regulations or
ordinances affecting its properties or the operation of its business,
except for matters which would not have a material affect on Company or
its properties.
Section 2.18 LITIGATION. Except as disclosed on Schedule 2,
Company is not a party to any litigation, arbitration or other judicial
or administrative dispute or proceeding, nor is any governmental
investigation pending or, to its best knowledge, threatened against
Company which would affect Company or its business, assets or financial
condition, except for matters which would not have a material affect on
Company or its properties. Company is not in default with respect to
any order, writ, injunction or decree of any federal, state, local or
foreign court, department, agency or instrumentality applicable to it.
Company is not engaged in any suit to recover any material amount of
monies due to it.
Section 2.19 AUTHORITY. Company has full corporate power and
authority to enter into this Agreement. The Board of Directors of
Company has taken all action required to authorize the execution and
delivery of this Agreement by or on its behalf and the performance of
its obligations under this Agreement. No other corporate proceedings
are necessary to authorize Company to execute and deliver this
Agreement, except the approval of this Agreement by the holders of more
than two-thirds of the issued and outstanding Shares. This Agreement
is, and when executed and delivered by Company will be, a valid and
binding agreement of Company, enforceable against it in accordance with
its terms, except as such enforceability may be limited by general
principles of equity, bankruptcy, insolvency, moratorium and similar
laws relating to creditors' rights generally.
Section 2.20 ABILITY TO CARRY OUT OBLIGATIONS. Except as set
forth in SCHEDULE 2, neither the execution and delivery of this
Agreement, the performance by Company of its obligations under this
Agreement, nor the consummation of the transactions contemplated under
this Agreement will, to the best of Company's knowledge: (a) materially
violate any provision of Company's Articles of Incorporation or Bylaws;
(b) violate, or be in conflict with, or constitute a material default
under, or cause or permit the termination or the acceleration of the
maturity of, any debt, contract, agreement or obligation of Company, or
require the payment of any prepayment or other penalties; (c) require
notice to, or the consent of, any party to any agreement or commitment,
lease or license; (d) result in the creation or imposition of any
security interest, lien, or other encumbrance upon any material
property or assets of Company; or (e) violate any statute
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or law or any judgment, decree, order, regulation or rule of any court
or governmental authority.
Section 2.21 FULL DISCLOSURE. Company' representations and
warranties made herein, and in any schedule, exhibit or certificate
furnished or to be furnished in connection with this Agreement, are
true and materially complete at execution of this Agreement and will be
true and materially complete at Closing.
Section 2.22 GOOD TITLE. Company has good and marketable title
to its assets free of material liens or encumbrances other than as
disclosed on SCHEDULE 2.
Section 2.23 MATERIAL CONTRACTS AND OBLIGATIONS. Attached
hereto on SCHEDULE 2 is a list of all agreements, contracts,
indebtedness, liabilities and other obligations to which Company is a
party or by which it is bound that are material to the conduct and
operations of its business and properties and that provide for payments
to or by Company in excess of $50,000 or involve transactions or
proposed transactions between Company and its officers and directors.
Copies of such agreements and contracts and documentation evidencing
such liabilities and other obligations have been or will be made
available by Company for inspection by USC and its counsel. To
Company's knowledge, all of such agreements and contracts are valid,
binding and in full force and effect in all material respects, assuming
due execution by the other parties to such agreements and contracts.
Section 2.24 CONSENTS AND APPROVALS. Except for the filing of
the Plan of Merger with the Commonwealth of Virginia and the
Subsidiary's State of Incorporation, no consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained
by Company in connection with: (a) execution and delivery; (b)
performance of obligations; or (c) the consummation of the transactions
contemplated by and under this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF USC
-------------------------------------
Including the disclosures made on SCHEDULE 3 which is attached hereto
and incorporated herein by reference, USC represents and warrants to Company
that:
Section 3.1 ORGANIZATION. USC is a corporation duly organized,
validly existing, and in good standing under the laws of Colorado, having all
necessary corporate powers to own properties and to carry on its business and is
duly qualified to do business and is in good standing in each of the
jurisdictions where its business requires qualification.
Section 3.2 CAPITALIZATION. The authorized capital stock of
USC consists of 500,000,000 shares of no par value Common Stock of
which 10,730,100 shares of Common Stock are issued and outstanding as
of October 22, 1997. USC has no plan or intention to reacquire any of
the stock it issues in this transaction. The common stock of USC
currently trades on the NASDAQ Bulletin Board under the symbol "UNSC."
Recent
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bid and asked prices of USC stock are detailed on SCHEDULE 3. All of
the issued and outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable.
Section 3.3 ORGANIZATION STATUS. Neither USC nor Subsidiary
has, nor at the Effective Time will have, any plan or intention to (and
each covenants that, for at least two years after the Effective Time,
neither will) take any action that would (i) cause or permit USC not to
own directly stock of Subsidiary possessing at least 80 percent of the
total combined voting power of all classes of Subsidiary stock entitled
to vote and at least 80 percent of the total number of shares of each
other class of Subsidiary stock, (ii) cause or permit Subsidiary
neither to conduct Company's historic business nor to use a significant
portion of Company's historic business assets in a business, or (iii)
cause or permit Subsidiary to liquidate, merge into another
corporation, or otherwise transfer a substantial portion of its assets
outside the ordinary course of business. In addition, each of USC and
Subsidiary will report and treat the Merger for income tax purposes as
a reorganization within the meaning of IRC Section 368(a)(1)(A) by
reason of Section 368(a)(2)(D). At the consummation of this
transaction, Subsidiary will be a corporation duly organized, validly
existing and in good standing under the laws of its State of
Incorporation having all necessary corporate powers to own properties
and to carry on business.
Section 3.4 FINANCIAL STATEMENTS; SEC FILINGS.
(a) USC has delivered to Company its audited balance sheet and
related statement of earnings and cash flows as of and for the period
ended December 31, 1996 and its unaudited balance sheet and related
statement of earnings and cash flows as of and for the period ended
September 30, 1997 (the "USC FINANCIAL STATEMENTS"). The USC Financial
Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated. The USC Financial Statements accurately set out and describe
the financial condition and operating results of Company as of the
dates, and for the periods, indicated therein.
(b) To the best of USC's knowledge and belief, USC has filed
all forms, reports and documents (collectively, the "SEC REPORTS")
required to be filed by it with the SEC since the date that USC has
been required to file SEC Reports and has heretofore made available to
Company, in the form filed with the SEC (excluding any exhibits
thereto), (i) its Annual Reports on Form 10-KSB for the fiscal years
ended December 31, 1995 and December 31, 1996, (ii) its Quarterly
Reports of Form 10-QSB for the periods ended March 31, 1997 and June
30, 1997, (iii) all proxy statements relating to USC's meetings of
stockholders (whether annual or special) held since January 1, 1995 and
(iv) all other forms, reports and other registration statements (other
than Quarterly Reports on Form 10-QSB and preliminary materials) filed
by USC with the SEC since January 1, 1995. USC agrees to deliver to
Company its Quarterly Report on Form 10-QSB for the period ended
September 30, 1997 upon the filing of such report with the SEC and such
other forms, reports or registration statements as are filed with the
SEC from the date hereof and prior to the Closing Date. SEC Reports and
any forms, reports and other
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documents filed by USC with the SEC (x) were prepared in accordance
with the requirements of the Securities Act and the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), as the case may be, and
the rules and regulations thereunder and (y) did not at the time they
were filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. No subsidiary
of USC is required to file any form, report or other document with the
SEC, except as set forth on SCHEDULE 3.
Section 3.5 ABSENCE OF CHANGES. Since December 31, 1996,
except for changes in the ordinary course of business which have not in
the aggregate been materially adverse, to the best of USC's knowledge,
USC has not experienced or suffered any material adverse change in its
condition (financial or otherwise), results of operations, properties,
business or prospects or waived or surrendered any claim or right of
material value.
Section 3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither USC
nor any of its properties or assets are subject to any liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise and whether due or to become due, that are not reflected in
the financial statements presented to Company (other than those
incurred in the ordinary course of business since December 31, 1996 and
consistent with past practice).
Section 3.7 INVESTIGATION OF FINANCIAL CONDITION. Without in
any manner reducing or otherwise mitigating the representations
contained herein, Company shall have the opportunity to meet with USC's
accountants and attorneys to discuss the financial condition of USC.
USC shall make available to Company all its books and records.
Section 3.8 EQUIVALENCE OF VALUE. The fair market value of the
Common Stock and other consideration received by each Company
Shareholder will be approximately equal to the fair market value of the
Shares surrendered in the exchange.
Section 3.9 CONTINUITY. Following the transaction, Subsidiary
will continue the historic business of Company.
Section 3.10 NO INTERCORPORATE INDEBTEDNESS. There is no
intercorporate indebtedness existing between USC and Company or between
Subsidiary and Company that was issued, acquired, or will be settled at
a discount.
Section 3.11 COMPLIANCE WITH LAWS. To the best of USC's
knowledge, it has complied with, and is not in violation of, applicable
federal, state or local statutes, laws and regulations affecting its
properties or the operation of its business.
Section 3.12 LITIGATION. USC is not a party to any litigation,
arbitration, or other dispute proceeding, nor is any governmental
investigation pending or, to the best knowledge of USC, threatened
against USC which would affect USC or its business,
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assets, or financial condition. USC is not in default with respect to
any order, of any federal, state, local, or foreign court, department
agency, or instrumentality.
Section 3.13 AUTHORITY. USC has full corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The Board of Directors of
USC has taken all action required to authorize the execution and
delivery of this Agreement by or on behalf of USC, and all other
agreements contemplated hereby, the performance of the obligations of
USC hereunder and thereunder and the consummation by USC of the
transactions contemplated hereunder and thereunder. No other corporate
proceedings on the part of USC are necessary to authorize USC to
execute and deliver this Agreement and the other agreements
contemplated hereby. This Agreement and the other agreements
contemplated hereby are, and when executed and delivered by USC, will
be valid and binding agreements of USC, enforceable against USC in
accordance with their respective terms, except as such enforceability
may be limited by general principles of equity, bankruptcy, insolvency,
moratorium and similar laws relating to creditors rights generally.
Section 3.14 ABILITY TO CARRY OUT OBLIGATIONS. Neither the
execution and delivery of this Agreement, the performance by USC of its
obligations under this Agreement, nor the consummation of the
transactions contemplated under this Agreement will, to the best of
USC's knowledge: (a) violate any provision of USC's articles of
incorporation or bylaws; (b) violate, or be in conflict with or
constitute a default under, or cause or permit the termination or the
acceleration of the maturity of, any debt, contract, agreement or
obligation of USC, or require the payment of any prepayment or other
penalties; (c) require notice to, or the consent of, any party to any
agreement or commitment, lease or license; (d) result in the creation
or imposition of any security interest, lien or other encumbrance upon
any property or assets of USC; or (e) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or
governmental authority.
Section 3.15 VALIDITY OF USC SHARES. The shares of USC Common
Stock to be delivered pursuant to this Agreement, when issued in
accordance with the provisions of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
Section 3.16 FULL DISCLOSURE. USC's representations and
warranties made herein, or in any exhibit, certificate or memorandum
furnished or to be furnished by USC, or on its behalf, are true and
materially complete.
Section 3.17 CONSENTS AND APPROVALS. Except for the filing of
the Plan of Merger with the Commonwealth of Virginia and the
Subsidiary's State of Incorporation, no consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority is required to be made or obtained
by USC in connection with: (a) execution and delivery of its
obligations; (b) performance; or (c) consummation by USC of the
transactions contemplated by and under this Agreement.
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ARTICLE IV
COVENANTS
---------
Section 4.1 INVESTIGATIVE RIGHTS. From the date of this
Agreement until the Closing Date, each party shall provide to the other
party, and such other party's counsel, accountants, auditors, and other
authorized representatives, full access during normal business hours
and upon reasonable advance written notice to all of each party's
properties, books, contracts, commitments, and records for the purpose
of examining the same. Each party shall furnish the other party with
all information concerning each party's affairs as the other party may
reasonably request. If the transaction contemplated hereby is not
completed, all documents received by each party and/or its attorneys
and accountants, auditors or other authorized representatives shall be
returned to the other party who provided same upon request. The parties
hereto, their directors, employees, agents and representatives shall
not disclose any of the information described above unless such
information is already disclosed to the public, without the prior
written consent of the party to which the confidential information
pertains. Each party shall take such steps as are necessary to prevent
disclosure of such information to unauthorized third parties.
Section 4.2 CONDUCT OF BUSINESS. Prior to the Closing, Company
and USC shall each conduct its business only in the normal course, and
shall not sell, pledge, assign or distribute any assets, except in the
regular course of business.
Section 4.3 AGREEMENTS. Company shall not, at any time prior
to December 22, 1997, agree to merge with, be acquired by (which
acquisition would result in the acquiror owning more than 50% of the
voting capital stock of Company) or sell all or substantially all of
its assets to any corporation, limited liability company, partnership,
person or other entity or group other than USC or Subsidiary.
Section 4.4 PURCHASE AND SALE OF USC COMMON STOCK.
(a) The Company agrees that it will not, and that it will use
its reasonable best efforts to cause its officers, directors,
shareholders and employees not to, purchase or sell any shares of
Common Stock of USC from the date hereof through the Closing Date,
unless such purchase is approved by the Board of Directors of USC.
(b) USC agrees that it will not, and that it will use its
reasonable best efforts to cause its officers, directors, shareholders
and employees not to, purchase any shares of Common Stock of USC from
the date hereof through the Closing Date, unless such purchase is
approved by the Board of Directors of the Company.
ARTICLE V
CONDITIONS PRECEDENT TO COMPANY'S PERFORMANCE
---------------------------------------------
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Section 5.1 CONDITIONS. The obligations of Company hereunder
shall be subject to the satisfaction, at or before the Closing, of all
the conditions set forth in this Article 5. Company may waive any or
all of these conditions in whole or in part without prior notice;
provided however, that no such waiver of a condition shall constitute a
waiver by Company of any other condition of or any of Company's other
rights or remedies, at law or in equity, if USC shall be in default of
any of its representations, warranties, or covenants under this
Agreement.
Section 5.2 ACCURACY OF REPRESENTATIONS. Except as otherwise
permitted by this Agreement, all representations and warranties by USC
in this Agreement or in any written statement that shall be delivered
to Company by USC under this Agreement shall be true and accurate on
and as of the Closing Date as though made at that time.
Section 5.3 PERFORMANCE. USC shall have performed, satisfied,
and complied with all covenants, agreements, and conditions required by
this Agreement to be performed or complied with by it, on or before the
Closing Date.
Section 5.4 ABSENCE OF LITIGATION. No action, suit or
proceeding before any court or any governmental body or authority,
pertaining to the transaction contemplated by this Agreement or to its
consummation, shall have been instituted or threatened against USC on
or before the Closing Date.
Section 5.5 APPROVAL OF COMPANY SHAREHOLDERS. The Merger shall
have been approved at the Special Meeting by the holders of the
outstanding Shares in accordance with the Company's Articles of
Incorporation and the VSCA.
Section 5.6 OFFICER'S CERTIFICATE. USC shall have delivered to
Company a certificate, dated the Closing Date, and signed by the Chief
Executive Officer of USC, certifying that each of the conditions
specified in Sections 5.2 through 5.4 hereof have been fulfilled.
ARTICLE VI
CONDITIONS PRECEDENT TO USC'S PERFORMANCE
-----------------------------------------
Section 6.1 CONDITIONS. USC's obligations hereunder shall be
subject to the satisfaction, at or before the Closing, of all the
conditions set forth in this Article 6. USC may waive any or all of
these conditions in whole or in part without prior notice; provided,
however, that no such waiver of a condition shall constitute a waiver
by USC of any other condition of or any of USC's rights or remedies, at
law or in equity, if Company shall be in default of any of its
representations, warranties, or covenants under this Agreement.
Section 6.2 ACCURACY OF REPRESENTATIONS/RIGHT TO TERMINATE.
Except as otherwise permitted by this Agreement, all representations
and warranties by Company in this Agreement or in any written statement
that shall be
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delivered by Company to USC under this Agreement shall be true and
accurate on and as of the Closing Date as though made at that time.
Further, the parties understand and agree that USC is entering into
this Agreement with the expectation that the Business has a fair market
value commensurate with the consideration to be paid by USC and that
the investigation contemplated by Section 2.13 will confirm such
expectation. However, subject in all respects to the immediately
following sentence, the parties agree that in USC's sole discretion,
USC may terminate this Agreement at any time prior to the Closing Date
if USC determines for any reason it is not in its best interest to
consummate the transaction contemplated hereby. Further provided,
however, that the parties agree that in the event of USC's termination
of this Agreement, the $100,000 cash payment and the 800,000 shares of
USC Common Stock (each as described in Section 1.8) shall be retained
by Company and/or the participating Shareholders as their interest may
appear.
Section 6.3 PERFORMANCE. Company shall have performed,
satisfied, and complied with all covenants, agreements, and conditions
required by this Agreement to be performed or complied with by them, on
or before the Closing Date.
Section 6.4 ABSENCE OF LITIGATION. No action, suit or
proceeding before any court or any governmental body or authority,
pertaining to the transaction contemplated by this Agreement or to its
consummation, shall have been instituted or threatened against Company
on or before the Closing Date.
Section 6.5. APPROVAL BY COMPANY SHAREHOLDERS. The Merger
shall have been approved at the Special Meeting by the holders of the
outstanding Shares in accordance with the Company's Articles of
Incorporation and the VSCA.
Section 6.6. EMPLOYMENT AGREEMENT. Granville G. Valentine,
III, Gene G. Bright, Edward J. Ritz, Bruce E. Crocker and Robert B.
Campbell, all employees of Company, shall have accepted employment with
USC and shall have executed and delivered an Employment Agreement in
form and substance reasonably satisfactory to USC and to Messrs.
Valentine, Bright, Ritz, Crocker and Campbell.
Section 6.7. NET WORTH. Company shall have a net worth of not
less than $4,500,000 as of the Closing Date; provided, however, that
this condition shall be considered satisfied if Company's net worth is
less than $4,500,000 by not more than Company's costs relating to the
Merger (including, without limitation, fees and expenses charged by
counsel or by Company's investment banker or broker), in which case the
cash portion of the Merger Consideration shall be reduced by the amount
by which the net worth is less than $4,500,000.
Section 6.8 OFFICERS' CERTIFICATE. Company shall have
delivered to USC a certificate, dated the Closing Date and signed by
the President of Company certifying that each of the conditions
specified in Sections 6.2 (first sentence only) through 6.5 and 6.7
have been fulfilled.
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ARTICLE VII
CLOSING
-------
Section 7.1 CLOSING. The Closing of the Merger shall be held
at the offices of Hunton & Williams, 951 East Byrd Street, Richmond,
Virginia, or such other place as shall be mutually agreed upon, on or
before December 22, 1997 (the "CLOSING DATE") or on such other date as
shall be mutually agreed upon by the parties. At the Closing:
(a) The Plan of Merger shall be filed with the State
Corporation Commission of the Commonwealth of Virginia and the
Secretary of the Subsidiary's State of Incorporation.
(b) Each Shareholder (including the holder of the options
described in Section 1.6 hereof) not dissenting to the Merger shall
receive a certificate or certificates representing the number of shares
of USC Common Stock as well as the pro rata amount of cash to which
such Shareholder is entitled.
(c) Company shall deliver the officer's certificate, described
in Section 6.8 hereof, dated the Closing Date.
(d) Company shall deliver a signed Consent and/or Minutes of
its Directors approving this Agreement and each matter to be approved
by its Directors under this Agreement.
(e) USC shall deliver an officer's certificate, as described
in Section 5.6 hereof, dated the Closing Date.
(f) USC shall deliver a signed Consent or Minutes of the
Directors of USC approving this Agreement and each matter to be
approved by the Directors of USC under this Agreement.
(g) USC shall deliver a certified or cashier's check or wire
payable to Hunton & Williams Trust Account in an amount sufficient to
pay the cash consideration described in Section 7.1(b) above.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 8.1 INDEMNIFICATION BY COMPANY.
(a) Except as hereinafter set forth, Company shall indemnify
and hold harmless USC, and their respective successors and assigns,
against, and in respect of, any and all damages, claims, losses,
liabilities which may arise out of: (i) any breach or violation of this
Agreement by Company; (ii) any breach of any of the representations,
warranties or covenants made in this Agreement by Company; or (iii) any
inaccuracy or misrepresentation in any certificate or documents
delivered in accordance with the terms of
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this Agreement by Company (collectively, "USC WARRANTY CLAIMS");
provided, however, that USC shall be entitled to indemnification
hereunder only when, and only with respect to amounts by which, the
aggregate of all such USC Warranty Claims exceeds $50,000; provided,
further that the aggregate amount of all USC Warranty Claims subject to
indemnification by Company shall not exceed $200,000.
(b) The warranties and representations of Company contained in
this Agreement or any certificate, document, instrument or agreement
delivered pursuant to this Agreement, shall survive the execution and
delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement until twelve (12) months
after the Closing Date; provided that if there shall then be pending
any Warranty Claims previously asserted by USC, such Warranty Claim
shall continue to be subject to indemnification in accordance herewith.
Section 8.2. INDEMNIFICATION BY USC.
(a) Except as hereinafter set forth, USC shall indemnify and
hold harmless Company, its successors and assigns, and the Shareholders
against and in respect of, any and all damages, claims, losses or
liabilities which may arise out of (i) any breach or violation of this
Agreement by USC; (ii) any breach of any of the representations,
warranties or covenants made in this Agreement by USC; (iii) any
inaccuracy or misrepresentation in any certificate or document
delivered in conjunction with this Agreement by USC; or (iv) the
failure, after the Closing Date, of Subsidiary or USC to pay or
otherwise discharge when due any contractual or other obligation
relating to the assets or business of Subsidiary, for which obligation
Company is primarily, secondarily or jointly and severally liable,
whether as guarantor, sublessor, surety or otherwise (collectively,
"COMPANY WARRANTY CLAIMS").
(b) The warranties and representations of USC contained in
this Agreement or any certificate, document, instrument or agreement
delivered pursuant to this Agreement, shall survive the execution and
delivery of this Agreement, the Closing and the consummation of the
transactions called for by this Agreement until twelve (12) months
after the Closing Date; provided, if there shall then be pending any
Company Warranty Claims previously asserted by Company, such Warranty
Claim shall continue to be subject to indemnification in accordance
herewith.
Section 8.3. NOTICE OF CLAIM. Upon obtaining knowledge
thereof, USC, Company or the Shareholders, as the case may be (the
"INDEMNITEE"), shall promptly notify Company, the Shareholders or USC,
as the case may be (the "INDEMNITOR"), in writing of any damage, claim,
loss, liability or expense that the Indemnitee has determined has given
or could give rise to a claim under Sections 8.1 or 8.2 hereof (such
written notice being hereinafter referred to as a "NOTICE OF CLAIM"). A
Notice of Claim shall specify, in reasonable detail, the nature of any
such claim giving rise to a right of indemnification.
Section 8.4. DEFENSE OF THIRD PARTY CLAIM. With respect to any
claim or demand set forth in a Notice of Claim relating to a third
party claim, the Indemnitor may defend, in good faith and at their
expense, any such claim or demand, and
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the Indemnitee, at its expense, shall have the right to participate in
the defense of any such third party claim. So long as the Indemnitor is
defending in good faith any such third party claim, the Indemnitee
shall not settle or compromise such third party claim. The Indemnitee
shall make available to the Indemnitor or its representatives all
records and other materials reasonably required by them for its use in
contesting any third party claim and shall cooperate fully with the
Indemnitor in the defense of all such claims.
Section 8.5. LIMITATION ON CLAIMS. In case any event shall
occur which would otherwise entitle either party to assert a claim for
indemnification hereunder, no loss, damage or expense shall be deemed
to have been sustained by such party to the extent of (a) any tax
savings realized by such party with respect thereto, or (b) any
proceeds received by such party from any insurance policies with
respect thereto.
Section 8.6. ACTUAL KNOWLEDGE. An Indemnitor shall not be
liable under this Article VIII for a loss resulting from any event
relating to a breach of any representation or warranty if the
Indemnitor can establish that the Indemnitee had actual knowledge on or
before the Closing Date of such event.
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 CAPTIONS AND HEADINGS. The Article and section
headings throughout this Agreement are for convenience and reference
only, and shall in no way define, limit, or add to the meaning of any
provision of this Agreement.
Section 9.2 NO ORAL CHANGE. This Agreement and any provision
hereof, may not be waived, changed, modified, or discharged orally, but
it can be changed by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, or
discharge is sought.
Section 9.3 NON-WAIVER. Except as otherwise expressly provided
herein, no waiver of any covenant, condition, or provision of this
Agreement shall be deemed to have been made unless expressly in writing
and signed by the party against whom such waiver is charged; and (i)
the failure of any party to insist in any one or more cases upon the
performance of any of the provisions, covenants, or conditions of this
Agreement or to exercise any option herein contained shall not be
construed as a waiver or relinquishment for the future of any such
provisions, covenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or
provision hereof shall not be deemed a waiver of such breach or
failure, and (iii) no waiver by any party of one breach by another
party shall be construed as a waiver with respect to any other or
subsequent breach.
Section 9.4 ENTIRE AGREEMENT. This Agreement contains the
entire Agreement and understanding between the parties hereto, and
supersedes all prior agreements and understandings.
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Section 9.5 CHOICE OF LAW. This Agreement and its application
shall be governed by the laws of the Commonwealth of Virginia, except
to the extent that Virginia's conflict of laws provisions would apply
the laws of another jurisdiction.
Section 9.6 NOTICES. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if served
personally on the party to whom notice is to be given, or on the third
day after mailing if mailed to the party to whom notice is to be given,
by first class mail, registered or certified, postage prepared, and
properly addressed as follows:
Company: with a copy to:
R.P. Industries, Inc. Gordon F. Rainey, Jr., Esq.
7400 Beaufont Springs Drive Hunton & Williams
Suite 325 951 East Byrd Street
Richmond, Virginia 23225 Riverfront Plaza
Richmond, Virginia 23219
USC: with a copy to:
United Shields Corporation Jane Fink-Silvers, Esq.
Grand Baldwin Building Drew & Ward
655 Eden Park Drive, Suite 260 24th Floor, Central Trust Tower
Cincinnati, Ohio 45202 4th and Vine Streets
Cincinnati, Ohio 45202
Section 9.7 BINDING EFFECT. This Agreement shall inure to and
be binding upon the heirs, executors, personal representatives,
successors and assigns of each of the parties of this Agreement.
Section 9.8 MUTUAL COOPERATION. The parties hereto shall
cooperate with each other to achieve the purpose of this Agreement, and
shall execute such other and further documents, including statutory
merger documents required by governing jurisdictions, and take such
other and further actions as may be necessary or convenient to effect
the transaction described herein.
Section 9.9 ANNOUNCEMENTS. Company and USC will consult and
cooperate with each other as to the timing and content of any
announcements of the transactions contemplated hereby.
Section 9.10 EXPENSES. Company and USC will each pay its own
legal, accounting and any other out-of-pocket expenses reasonably
incurred in connection with this transaction, whether or not the
transaction contemplated hereby is consummated.
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Section 9.11 EXHIBITS. As of the execution hereof, the parties
hereto have provided each other with the Exhibits provided for
hereinabove, including any items referenced therein or required to be
attached thereto. Any material changes to the Exhibits shall be
immediately disclosed to the other party.
[Signatures Appear on Next Page]
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AGREED TO AND ACCEPTED as of the date first above written.
UNITED SHIELDS CORPORATION
By: /s/ T. J. Tully
-------------------------------
T. J. Tulley
Chairman and
Chief Executive Officer
R.P. INDUSTRIES, INC.
By: /s/ Granville G. Valentine, III
-------------------------------
Granville G. Valentine, III
President and Chief Executive Officer
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<PAGE> 40
EXHIBIT A
---------
FORM OF
PLAN OF MERGER
OF
R.P. INDUSTRIES, INC.
WITH AND INTO
[SUBSIDIARY]
Section 19. CORPORATIONS PROPOSING TO MERGE AND SURVIVING CORPORATION.
R.P. Industries, Inc., a Virginia corporation (the "Company"), shall, upon the
issuance of a Certificate of Merger by the State Corporation Commission of the
Commonwealth of Virginia and the issuance of a Certificate of Merger by the
Secretary of State of the State of [Subsidiary's State of Incorporation] (the
time of the later of such events being referred to herein as the "Effective
Time"), be merged (the "Merger") with and into [Subsidiary], a [_________]
corporation (the "Subsidiary"), pursuant to the terms and conditions of this
Plan of Merger (the "Plan of Merger") and of the Merger Agreement, dated as of
October 22, 1997 (the "Merger Agreement"), by and among the Company and United
Shields Corporation, a Colorado corporation and the sole shareholder of the
Subsidiary (the "Parent"). The Subsidiary shall continue as the surviving
corporation (the "Surviving Corporation") in the Merger and the separate
corporate existence of the Company shall cease.
Section 20. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in Section 13.1-721 of the Virginia Stock Corporation Act, as amended
(the "USCA"), and Section ____ of the [Subsidiary's State of Incorporation]
Corporation Law, as amended (the "_______"). As of the Effective Time, the
Surviving Corporation shall be a wholly owned subsidiary of the Parent.
E-23
<PAGE> 41
Section 21. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Subsidiary as in effect immediately prior to the
Effective Time shall, by virtue of the Merger, be the Articles of Incorporation
and Bylaws of the Surviving Corporation.
Section 22. CONVERSION OF SHARES.
(a) At the Effective Time, each issued and outstanding share of the
Company's Common Stock (the "Shares"), $0.01 par value, other than
Shares held by "dissenters" within the meaning of Section 13.1-729 of
the USCA (the "Dissenting Shares"), shall be canceled, retired and
converted into the right to receive the following consideration per
Share (the "Merger Consideration"):
(i) _______ shares of Parent common stock; and
(ii) $___________.
(b) Dissenting Shares shall, from and after the Effective Time, have
only such rights as are afforded to the holders thereof by the
provisions of Section 13.1-730 of the VSCA.
(c) As of the Effective Time, the stock options of the Company held by
Granville G. Valentine, III to acquire 110,000 Shares shall, to the
extent not theretofore exercised, automatically be canceled and retired
and[, subject to receipt of shareholder approval meeting the
requirements of IRC Section 280G(b)(5)(B) or waiver of such approval by
the Company,] shall convert into the right to receive the appropriate
portion of the Merger Consideration set forth in paragraph (a) above
that relates to such Shares less the aggregate exercise price that
would be payable upon exercise of such stock options. All other
warrants, options, phantom stock, convertible securities or any other
rights to acquire shares of common stock of the Company, if any such
rights exist, shall be canceled and extinguished at the Effective Time
without any conversion thereof and no payment shall be made with
respect thereto.
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Section 23. TERMINATION. This Plan of Merger may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Effective
Time by either the Company or the Subsidiary by action of their respective Board
of Directors, if and only if, the Merger Agreement is terminated in accordance
with its terms
Section 24. CONDITIONS TO MERGER. Consummation of the Merger is subject
to the following conditions precedent:
(a) the Plan of Merger shall have been approved by the affirmative vote
of the holders of shares of the Company by the requisite vote in
accordance with applicable law;
(b) [THE PLAN OF MERGER SHALL HAVE BEEN APPROVED BY THE AFFIRMATIVE
VOTE OF THE SOLE SHAREHOLDER OF THE SUBSIDIARY;] and
(c) the satisfaction or waiver, if permissible, of the other conditions
precedent described in the Merger Agreement.
Section 25. AMENDMENT. At any time before the Effective Time, this Plan
of Merger may be amended, provided that:
(a) any such amendment is approved by the respective Boards of
Directors of the Company and the Subsidiary; and
(b) any such amendment made subsequent to the submission of this Plan
of Merger to the shareholders of the Company [AND THE SUBSIDIARY]
shall comply with the terms of Section 13.1-718I of the VSCA and
Section _____ of the _____________.
Section 26. GOVERNING LAW. This Plan of Merger shall be governed by the
laws of the Commonwealth of Virginia.
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<PAGE> 43
IN WITNESS WHEREOF, the parties have caused this Plan of Merger to be
executed as of the ____ day of _____________, 1997.
[SUBSIDIARY]
By:
-------------------------------
Name:
Title:
R.P. INDUSTRIES, INC.
By:
-------------------------------
Granville G. Valentine, III
President and Chief Executive
Officer
E-26
<PAGE> 44
SCHEDULE 2
TO
MERGER AGREEMENT
A. CAPITALIZATION.
1. As of the date hereof, the following individuals, in the
amounts indicated, are the owners of 100% of the outstanding
common stock of the Company:
SHAREHOLDER # SHARES
- ----------- --------
Darby Raines Adcock 1,000
Gene G. Bright/Donna D. Bright 10,451
Gene G. Bright 24,739
Austin Brockenbrough III 1,000
Jane Brockenbrough 1,000
Isadore Brown 100
Eunice Bass Browning 400
Joseph Brugh 30
Jonathan Bryan III 402,140
Jonathan Bryan III (Isabell Scott Bryan) 10,000
Robert Carter Bryan 10,000
Mary Bryan 125
Lorraine Clark 100
Crawley Connelly 100
Colleen Hayes Daniel 500
J. Randolph Daniel 1,000
James R. V. Daniel 231,590
Mary Mead Trice Davenport 70
Harry Easterly 12,090
Dr. Morris M. Edison 2,000
Gail & Marvin Greer 40
Mark Holt 150
Donald Kidd 150
Margaret V. Lachner 350
Lawrence Lewis, Jr. Estate 7,250
Frederick Leys 70
C. Henry & Marguarite Lumsford 200
E-27
<PAGE> 45
Mrs. Erin McKiveen 1,000
Mrs. Douglas Moncure 1,780
Dr. Dorothy Moore 100
Dr. Sidney G. Page 12,060
Carlton & Elaine Potts 30
Dr. David H. Reames Jr. 150
Edward Ritz 26,000
Betsy Coke Sebrall 100
Robert Schultz 2,000
Charlie Tribble 1,600
Granville Valentine 150
Dr. Joseph Whittle 400
Marjorie Williams 60
CEDE Company 270,820
Smith Barney 320
Kray & Co. 33
Merril Lynch 297
Davenport:
John Bryan 76,193
John Bryan (Jeb Bryan) 6,269
John Bryan (Elle Bryan) 6,269
John Bryan (Gussie Bryan) 6,269
Robert Bryan 85,000
Isabell Bryan 85,000
Granville Valentine 5,130
Lamont Bryan 40
J. W. Phillips 150
Plummer Printing 460
Scott & Stringfellow 2,375
Wheat First 3,150
Wheat First Securities
5,050
-----
Total.............................. 1,044,080
=========
2. Certain stock options of Company held by Granville G.
Valentine, III are more particularly described in Section 1.6
of this Agreement.
B. SUBSIDIARIES. The Company directly or indirectly owns 100% of the
capital stock of the following entities:
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<PAGE> 46
Furniture Plastics of Forest City, Inc., a North Carolina Corporation
Granville Plastics Company, Inc., a North Carolina corporation
R.P. Enterprises, Inc., a Virginia corporation
R.P. Real Estate, Inc., a Virginia corporation
Richmond Plastics, Inc., a Virginia corporation
In addition, through R.P. Real Estate, Inc., Company owns a 99% interest in
Century Woods Limited Partnership, a Virginia limited partnership.
C. The directors and officers of Company are as follows:
R.P. INDUSTRIES, INC.
---------------------
DIRECTORS OFFICERS
--------- --------
John R. Bryan John R. Bryan, Chairman of the Board
James R. V. Daniel, III James R. V. Daniel, Vice Chairman
Granville G. Valentine, III Granville G. Valentine, III, President
Jonathan Bryan, III and Chief Executive Officer
Gene G. Bright Gene G. Bright, Vice President/
Lawrence B. Snyder Controller/Secretary
J. Randolph V. Daniel
<TABLE>
FURNITURE PLASTICS OF FOREST CITY, INC.
---------------------------------------
<S> <C>
DIRECTORS OFFICERS
--------- --------
Granville G. Valentine, III Granville G. Valentine, III, President
Gene G. Bright Gene G. Bright, Vice President/Controller/Secretary
GRANVILLE PLASTICS COMPANY, INC.
--------------------------------
DIRECTORS OFFICERS
--------------------------- --------------------------------------
Granville G. Valentine, III Granville G. Valentine, III, President
Gene G. Bright Gene G. Bright, Vice President/Controller/Secretary
John Duryea, Vice President of Operations
R.P. ENTERPRISES, INC.
----------------------
DIRECTORS OFFICERS
--------- --------
Granville G. Valentine, III Granville G. Valentine, III, President
Gene G. Bright Gene G. Bright, Vice President/Controller/Secretary
</TABLE>
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<PAGE> 47
<TABLE>
R.P. REAL ESTATE, INC.
----------------------
DIRECTORS OFFICERS
--------- --------
<S> <C>
Granville G. Valentine, III Granville G. Valentine, III, President
Gene G. Bright Gene G. Bright, Vice President/Controller/Secretary
RICHMOND PLASTICS, INC.
-----------------------
DIRECTORS OFFICERS
--------- --------
Granville G. Valentine, III Granville G. Valentine, III, President
Edward J. Ritz Edward J. Ritz, Jr., Senior Vice President/ General
Gene G. Bright Manager
Gene G. Bright, Vice President/Controller/Secretary
Bruce E. Crocker, Vice President of Sales
Lorraine B. Clark, Assistant Secretary
</TABLE>
D. TAX RETURNS. Pursuant to an audit recently conducted by the Internal
Revenue Service, the Company must file amended tax returns in Virginia
and North Carolina for fiscal years 1994, 1995 and 1996. The potential
maximum tax liability, interest and penalties, if any, associated with
these amended returns is expected to be less than $2,500.
E. PATENTS, TRADEMARKS, COPYRIGHTS. The Company has no patents,
trademarks, copyrights or similar intellectual property.
F. ENVIRONMENTAL COMPLIANCE. The Company engages certain third parties
to enter the premises of Richmond Plastics and remove waste oil that
accumulates in the utility trench located on the premises and noted in
the Phase I Environmental Site Assessment, dated August 18, 1997, and
prepared by Schnabel Engineering. The Company also stores certain
materials on its premises, such as anti-freeze, that are used in the
ordinary course of operations. Finally, there is a paint booth located
on the premises of Granville Plastics in which lacquer-based paints are
applied to products.
G. SALARY CONTINUATION AGREEMENTS. The Company is a party to two Salary
Continuation Agreements, each dated August 1, 1982. The respective
counter-party employees are James R. V. Daniel and Gene G. Bright. Each
agreement provides for a continuation of the employee's salary upon the
occurrence of certain events. Mr. Daniel's salary continuation
entitlement is equal to $104,250 per year through the end of calendar
year 2009. Mr. Bright's salary continuation entitlement is equal to 65%
of his annual salary at the time the benefit becomes payable, but is
limited to a maximum of $51,983.88 per year. These agreements have
previously been sent to USC's independent accountants.
H. LITIGATION. On May 5, 1997, Dorothy J. Perkinson, a former employee
of Granville Plastics, filed an administrative charge with the U. S.
Equal Employment Opportunity Commission ("EEOC") claiming
discrimination on the basis of sex and in violation of Title VII and of
the Equal Pay Act. Granville Plastics, the Respondent, categorically
denies the
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<PAGE> 48
charges and, on June 30, 1997, filed a position statement with the EEOC
responding to Ms. Perkinson's claims. Currently, the charge is pending
before the EEOC. No determination has been made.
I. ABILITY TO CARRY OUT OBLIGATIONS.
1. The Company and two of its affiliates entered into a
Term Loan and Security Agreement, dated as of March
4, 1994 (the "Loan Agreement"), with First Union
National Bank of Virginia (the "Bank") in connection
with a $3,625,794 loan, the proceeds of which were
used to finance the acquisition of equipment and
other capital and noncapital needs of the borrower.
The Loan Agreement prohibits the Company from
entering into any merger or consolidation that
results in the termination of the Company's existence
without first obtaining the consent of the Bank.
Company representatives have spoken with the Bank and
have been assured that the Bank will consent to the
transactions contemplated by the Merger Agreement.
2. The Company has entered into a Loan Commitment and
Agreement Letter dated December 21, 1995 (the
"Commitment Letter"), pursuant to which First Union
National Bank of Virginia agreed to provide an
unsecured line of credit to the Company in an amount
not to exceed $1,000,000. The Commitment Letter
contains a covenant similar to the covenant described
in paragraph I.2 above. Company representatives have
spoken with the Bank and have been assured that the
Bank will consent to the transactions contemplated by
the Merger Agreement.
J. GOOD TITLE. To the Company's knowledge, the only encumbrances
on any assets of the Company are as follows:
1. Pursuant to the Loan Agreement described in paragraph
I.1 of this Schedule 2, the Company granted to the
Bank a security interest in certain equipment and
machinery of certain subsidiaries of the Company,
including Granville Plastics Company, Inc.
2. The Toshiba Machine Company ("Toshiba") has a
security interest in an injection molding machine
that Richmond Plastics, Inc. purchased in August,
1997. Richmond Plastics paid an $18,000 down-payment
and agreed to pay the balance in 180 days ( i.e., in
January, 1998). Toshiba took a security interest in
the machine to secure the balance of the purchase
price.
K. MATERIAL CONTRACTS & OBLIGATIONS.
1. Term Loan and Security Agreement (see paragraph I.1
above).
2. Loan Commitment and Agreement Letter (see paragraph
I.2 above).
3. Obligations owing to Toshiba in an amount equal to
$164,000, representing the balance of the purchase
price of an injection molding machine (see paragraph
J.2 above).
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<PAGE> 49
4. The Company has a supplier agreement with General
Polymers Corporation which can provide volume rebates
to the Company in an amount equal to $10,000-15,000
per year if volume targets are met. The agreement
expires on December 31, 1997.
5. In connection with the liquidation of Moldsaver (a
former subsidiary of the Company), the Company
entered into a Letter Agreement with Master Tool Co.,
Inc. ("Master Tool"), dated as of April 10, 1996,
pursuant to which the Company receives royalties from
Master Tool calculated on the gross sales transferred
to Master Tool by Moldsaver.
6. The Company has an agreement with Bel-Art Products,
dated April 18, 1996, regarding the supply of plastic
bottles. This agreement expires on March 31, 2001.
7. The Company has an agreement with Carolina Nail,
dated April 24, 1996, regarding the supply of nail
washers. This agreement expires on May 8, 1998.
8. The Company has entered into the salary continuation
agreements described in paragraph G of this Schedule
2.
9. The Company, from time-to-time, enters into purchase
arrangements with its suppliers for raw materials
that may exceed $50,000.
10. The Company has made retention arrangements with
certain key employees in connection with the
transactions contemplated by the Merger Agreement.
These agreements are with Edward Ritz, general
manager of Richmond Plastics (who will be paid six
times his monthly salary of $6,115), Bruce Crocker,
sales manager of Richmond Plastics (who will receive
three times the sum of his monthly salary plus sales
commissions and incentive payments based on profit
margin of approximately $5,500) and Robert Campbell,
sales manager of Granville Plastics (who will be paid
thirteen times his weekly salary of $961.54). Amounts
payable under these arrangements will be paid into
escrow by the Company at Closing and will be treated
as an expense of the transactions contemplated by the
Merger Agreement.
11. The Company is a party to an Employment Agreement
with Granville G. Valentine, III dated as of June 1,
1993. This agreement expires on July 1, 1998.
12. The Company is the beneficiary of various life
insurance policies on the lives of certain
individuals connected with the Company. More
particularly, the Company is the beneficiary of two
key-man life insurance policies, one on the life of
James R. V. Daniel issued by Massachusetts Mutual
Life Insurance Company and the other on the life of
Granville G. Valentine, III issued by Valley Forge
Life Insurance Company. In addition, the Company is
the beneficiary of five life insurance policies
(James R. V. Daniel (2), Gene G. Bright (2) and a
former employee (1)) issued by The Great-West Life
Assurance Company in connection with the salary
continuation arrangements referenced in paragraph G.2
of this Schedule 2.
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<PAGE> 50
13. The Company leases its corporate offices in Richmond,
Virginia for a monthly rental payment of $1,764. The
rental rate will increase to $1,835 per month as of
September 1, 1998. The lease terminates on August 31,
1999.
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<PAGE> 51
SCHEDULE 3
UNITED SHIELDS CORPORATION
("USC")
No disclosure.
E-34
<PAGE> 52
MANAGEMENT AGREEMENT
THIS AGREEMENT ("MANAGEMENT AGREEMENT") is made this 22nd day
of October, 1997 by and between R.P. Industries, Inc., a Virginia corporation
(the "COMPANY"), and UNITED SHIELDS CORPORATION, a Colorado Corporation ("USC")
and its wholly owned subsidiary, such subsidiary to be designated later ("the
SUBSIDIARY").
WHEREAS, the Company and USC have entered into an agreement of
merger ("Merger Agreement") of even date herewith whereby the Company will merge
into and with the Subsidiary; and
WHEREAS, the Merger Agreement provides that the Company and
USC will enter into an agreement for management of the Company from the date of
execution of the Merger Agreement through the Closing Date provided for in the
Merger Agreement; and
WHEREAS, the parties desire to set forth their understandings
as to their rights and duties with respect to the operations and management of
the Company during the term of this Management Agreement.
NOW THEREFORE, in consideration of entering into the Merger
Agreement and for the mutual promises contained herein, the parties agree as
follows:
ARTICLE I
OPERATIONS OF THE COMPANY
-------------------------
Section 1.1 DAY TO DAY OPERATIONS/IN GENERAL. During the term of this Management
Agreement, the Company's management shall conduct the day to day operations of
the Company substantially in accordance with past practices, in a manner which
is in the best interest of the Company, and with the degree of skill and care
necessary to meet the fiduciary obligations of officers as prescribed by the law
of the Commonwealth of Virginia.
Section 1.2 USC AUTHORIZATION. Notwithstanding paragraph 1.1, it is the parties'
understanding and intention that USC shall have management control and final
authority over all transactions contained in EXHIBIT A. Therefore, the Company
shall not cause or allow to be caused any transaction listed in EXHIBIT A
without first notifying USC and obtaining written authorization from USC to
complete the proposed transaction.
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<PAGE> 53
Section 1.3 NOTIFICATION OF SIGNIFICANT EVENTS. The Company shall promptly
notify USC of all events listed in EXHIBIT B of which any of its directors,
officers, employees or agents have actual knowledge.
ARTICLE II
FINANCIAL INFORMATION
---------------------
Section 2.1 FINANCIAL INFORMATION. Company management shall prepare, or cause to
be prepared, monthly financial statements, prepared in accordance with the
Company's method of accounting, showing a detailed statement of earnings and
expenses for the month, and submit such financial information to USC by the 15th
day of the following month.
Section 2.2 INTERIM FINANCIAL STATEMENTS. At USC's request, Company management
shall retain USC's outside accounting firm to audit the Company and prepare
interim financial statements as of a date specified by USC, including a balance
sheet and related statements of income in accordance with generally accepted
accounting principles. The cost of such audit shall be borne by USC.
ARTICLE III
TERMINATION PROVISIONS
----------------------
Section 3.
TERMINATION. This Management Agreement shall terminate upon the earliest of:
(a) Termination of the Merger Agreement;
(b) The Closing Date, as specified in the Merger Agreement;
(c) The written agreement of both parties; or
(d) At the option of USC, upon the material breach of any of the
terms or conditions of this Management Agreement by the
Company.
Section 3.2 REMEDIES UPON BREACH. In the event of a material breach by the
Company of the terms of this Management Agreement, USC may, in its sole
discretion, terminate this Management Agreement and the Merger Agreement if the
Company fails to cure such breach within 10 days after the Company receives from
USC written notice thereof.
ARTICLE IV
MISCELLANEOUS
-------------
Section 4.1 POSTPONEMENT AND WAIVER. No failure or delay on the part of a party
in exercising a right or privilege under this Management Agreement shall operate
as a waiver thereof and a single or partial exercise of any right or privilege
shall not prevent further exercise of such right or privilege.
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<PAGE> 54
Section 4.2 GOVERNING LAW. This Management Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of Virginia except to
the extent that Virginia's conflicts of laws provisions would apply the laws of
another jurisdiction.
Section 4.3 ENTIRE AGREEMENT. This Management Agreement constitutes the entire
agreement of the parties regarding management of the Company prior to the
Closing Date and all previous negotiations and oral understandings are hereby
merged into this agreement.
Signed this 22nd day of October, 1997.
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
-----------------------------------
T.J. Tully
Chairman and Chief Executive Officer
R.P. INDUSTRIES, INC.
By: /s/ Granville G. Valentine, III
-----------------------------------
Granville G. Valentine, III
President and Chief Executive Officer
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<PAGE> 55
EXHIBIT A
---------
TRANSACTIONS REQUIRING
PRIOR AUTHORIZATION FROM USC
1. Payment, accrual or declaration of any dividend; PROVIDED that the
Company may declare and distribute cash dividends to the shareholders
of the Company, in such amounts as may be determined by the Board of
Directors of the Company, without USC's prior authorization so long as
(i) the Company shall have a net worth as of the Closing Date set forth
in the Merger Agreement of $4,500,000 and (ii) the distributions would
not result in a breach of the Company's representation made in Section
2.11 of the Merger Agreement.
2. Increase in officers' salaries or directors' fees or other compensation
or benefits for officers or directors.
3. Any cash outlay, whether an expense item or a capital improvement, and
whether one expenditure or group of related expenditures, in excess of
$20,000, other than inventory/raw materials, monthly contract labor
expenses and emergency repair and the expenses of the Company's
investment bankers and legal advisors in connection with the
transactions contemplated by the Merger Agreement.
4. Borrowing by the Company in an amount in excess of $20,000 in the
aggregate, other than borrowings under existing lines of credit in the
ordinary course of business and short term accounts payable incurred in
the normal course of business.
5. Lending or other extension of credit by the Company in an amount in
excess of $20,000 in the aggregate, including employee advances, other
than accounts receivable incurred in the ordinary course of business
and loans to affiliates made in the ordinary course of business.
6. The disposition, acquisition, lease or pledge of any material fixed
asset other than in the ordinary course of business.
7. The sale, pledge or other disposition of any material intellectual
property other than in the ordinary course of business.
8. An additional cash outlay for the cost of labor in excess of 20% from
the previous month.
9. Material changes to current material equipment lease and real estate
rental agreements.
10. Material changes to current banking relationships.
11. The hiring or firing of any officer or other key employee.
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<PAGE> 56
12. Entering into contracts, oral or written, other than raw material
contracts and other contracts in the ordinary course of business, and
any contract that obligates the Company for an amount in excess of
$20,000 other than raw materials contracts.
13. Material changes to Company employment policies, including employee
benefits.
14. Changes to Articles, Bylaws or any other governing documents of the
Company.
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<PAGE> 57
EXHIBIT B
---------
EVENTS REQUIRING THE COMPANY TO NOTIFY USC
1. Any event in the market which might significantly change business
operations, including but not limited to, destruction of a material portion of
Company property by an act of God, the loss of a major supplier or customer for
any reason, material changes in source or substantial increase in raw materials
for production, and changes to local, state or federal laws or regulations
significantly affecting the Company's ability to conduct business.
2. Any material suit or complaint filed against the Company, and any
threat of a material suit or complaint being filed against the Company.
3. Any notice of audit, deficiency, or request for significant
information by any federal or state regulatory agency, including but not limited
to the IRS, DOL, OSHA and the EPA.
4. Any material work stoppage or labor or employment dispute.
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<PAGE> 58
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is entered into this 30th day
of September, 1997, by and between UNITED SHIELDS CORPORATION, a Colorado
corporation (the "Company" or "Employer") and Donald T. Zimmerman, Jr., an
individual residing at 2564 Handasyde Avenue, Cincinnati, OH 45208.
WHEREAS, the Company is willing to employ the Employee and the Employee
is willing to be employed by the Company on the terms, covenants and conditions
set forth herein; and
WHEREAS, the Company and the Employee desire to define in this
Agreement, the rights, duties and obligations of the employment agreed to
between the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained in this Agreement and specifically in consideration of the
employment of the Employee by the Company for the compensation and upon the
terms set forth herein, the parties agree as follows:
1. TERM. Subject to the provisions for termination as hereinafter
provided, the Company hereby agrees to employ the Employee and the Employee
hereby agrees to be employed by the Company, for a term of five (5) years
beginning on January 1, 1998, or an earlier date agreed to by both parties. This
contract shall be null and void if the Company does not have projected annual
consolidated gross of sales of $20,000,000.00 by December 31, 1997 based on
sales for calendar year 1997, including sales of those companies which have
signed a definitive agreement with the Company for merger, consolidation,
purchase, share exchange or similar arrangements by December 15, 1997.
In such event Employee shall be paid for 60 days.
2. DUTIES OF EMPLOYEE.
A. The Employee agrees to perform the services provided herein
to the best of his ability and to the satisfaction of the Board of Directors of
the Company. The Employee shall devote his full time, attention, energies and
best efforts to providing said services to the Company.
B. The Company hereby employs and engages the Employee in the
position of Chief Operating Officer of Marketing and Sales. The Employee shall
render to the Company administrative and management services as are customarily
rendered by persons situated in similar management capacities and to provide
such other services for the Company as directed by the Company which shall be
reasonably related to his position.
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<PAGE> 59
3. COMPENSATION.
A. (i) As compensation for the full and faithful
performance of the services to be rendered
by the Employee to the Company as set forth
in Section 2 hereof, the Company shall pay
the Employee a base salary of $200,000.00
for the period from January 1, 1998 through
December 31, 1998 and for each subsequent
one-year period (subject to Sections 3(C)
and 6).
(ii) As additional compensation and consideration
for entering into this Agreement the
Employer shall issue 75,000 shares of no par
common stock to the Employee, free and clear
of all liens, upon his completion of the
first month of the term of this Agreement.
B. Said salary shall be payable in twelve (12) equal monthly
installments in accordance with the Company's normal payroll practices, and
subject to withholding of taxes, etc. as required by law.
C. Employee's base salary shall be reviewed at least annually,
commencing with a review during the month of March, 1999 and may be adjusted
from time to time in the sole discretion of the Board of Directors of the
Company, but in no event will it be adjusted to an amount lower than $200,000
per year.
D. Employee shall receive an annual bonus of 25% of base
compensation if the Company's sales reach certain goals established by the Board
of Directors on a yearly basis and agreed to by the Employee. The parties
understand and agree that the goals for the first year of this Agreement are as
stated in Exhibit 1. The annual bonus is to be paid within 60 days of the end of
the calendar year.
E. Employee shall receive an additional performance bonus in
cash, common stock of the Company, options to purchase common stock of the
company, or any combination of cash, stock and options, with the method of
payment to be at the discretion of the Board of Directors of the Company if the
Company's performance goals, established from time to time by the Board, are
met. The parties understand and agree that the goals for the first year of this
Agreement are as stated in Exhibit 2. The performance bonus is to be paid within
60 days of the end of the calendar year.
4. BENEFITS AND EXPENSES. During the term of this Agreement, Company
shall provide to the Employee:
A. The Employee shall be reimbursed for all ordinary and
reasonable business-related expenses incurred during the performance of the
service set forth in Section 2 hereof upon submission of receipts for same. All
such expenses are subject to the approval of the Company. Reimbursement for
automobile mileage will be at the rate currently prescribed by the Internal
Revenue Service.
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<PAGE> 60
B. Twenty-five (25) days paid vacation per calendar year in
accordance with Company's vacation policy to be taken at such time or times and
for such duration as Employee shall determine in accordance with the Company
policy provided that such vacation shall not interfere with the material
performance of the service set forth in Section 2. Employee shall not be
entitled to carry over any unused portion of vacation into a subsequent year.
C. Hospitalization and major medical insurance, consistent
with the Company's group policies, for Employee and his immediate family, upon
such terms as are provided to employees of the Company generally, which may be
modified by the Company from time to time.
D. Life insurance on Employee's life with a death benefit of
no less than $500,000.00.
E. The Company agrees to provide to Employee the additional
fringe benefits available to salaried employees of the Company generally, which
may be modified by the Company from time to time.
5. COVENANTS OF EMPLOYEE. The Employee agrees and acknowledges that
certain of the Company's services are proprietary in nature and shall have been
marketed through the use of customer lists, trade secrets, methods of operation
and other confidential information possessed by the Company and disclosed in
confidence to the Employee (hereinafter the "Trade Secrets or Confidential
Information") which may not have been accessible to other persons in the trade.
Trade Secrets or Confidential Information shall not include: (i) any information
in the public domain, (ii) any information received unsolicited from a third
party under no obligation of secrecy, or (iii) any information known by Employee
prior to entering into this Agreement. The Employee also acknowledges that he
will have substantial and ongoing contact with the Company's clients and will
thereby gain knowledge of clients' needs and preferences, sources of information
and other valuable information necessary for the success of Company's business.
The Employee therefore covenants and agrees as follows:
A. He will not at any time take any action or make any
statement that could discredit the reputation of the Company or its services or
products.
B. During the term of this Agreement and for a period of one
(1) year following termination of Employee's employment with the Company for any
reason, the Employee shall not:
(i) Solicit or accept business directly or
indirectly from any client of the Company
which does business within a five hundred
(500) mile radius of any facility owned or
operated by the Company;
(ii) Except as may be required by law, disclose,
divulge, discuss, copy or otherwise use or
suffer to be used in any manner, in
competition with, or contrary to the
interest of the Company,
E-43
<PAGE> 61
the Trade Secrets or Confidential
Information or any other confidential
information of or pertaining to the Company
or its services, disclosed to or obtained by
the Employee during the term of this
Agreement. The Employee further agrees that
he shall not, either during the term of this
Agreement or at any time subsequent thereto,
use, disclose or otherwise reveal any of the
Trade Secrets or Confidential Information to
any person, either directly or indirectly,
whether or not for compensation or
remuneration, except as necessary while
performing services on behalf of the
Company;
(iii) Own, manage, advise, counsel, assist or
engage in the ownership, management or
control of, or be employed or engaged by or
otherwise affiliated or associated as a
consultant, independent contractor or
otherwise, directly or indirectly, with any
other corporation, partnership,
proprietorship, or other business entity, or
otherwise engage in any business which
competes with or is similar in nature to a
business in which the Company is engaged,
and from which the Company derives more than
5% of its revenue, within a five hundred
(500) mile radius of any facility owned or
operated by the Company; and
(iv) In conjunction with 5(B)(iii), solicit,
induce, aid or suggest to any of the
employees, officers, agents, or consultants
of the Company or other persons having a
substantial contractual relationship with
the Company, to leave such employ, cease any
consulting relationship with the Company, or
terminate such contractual relationship with
the Company.
C. Employee recognizes that the foregoing items are material
to this Agreement and that the failure to abide by such terms shall constitute
sufficient Cause for Termination of Employment as provided in Section 6 hereof.
D. Employee agrees and understands that the remedy at law for
any breach of this Section 5 will be inadequate and that damages flowing from
such breach are not readily susceptible to being measured in monetary terms.
Accordingly, in the event that the Company shall institute any action or
proceeding to enforce the provisions of this Agreement, the Employee hereby
waives the claim or defense therein that the Company has an adequate remedy at
law. Nothing in this Section 5 shall be deemed to limit the Company's remedies
at law or in equity for breach by the Employee of any of the provisions of this
Section 5 which may be pursued by the Company.
E. Employee shall not create or suffer to be created, without
the express prior written consent of the Company, any mortgage, pledge, lien or
encumbrance of any kind whatsoever against or upon any property of the Company,
or make any contract or create any obligation, liability or debt of any kind, in
the name of or binding upon the Company without its prior written consent other
than in the ordinary course of business.
E-44
<PAGE> 62
F. Employee agrees that, upon termination of employment with
the Company for any reason whatsoever, Employee will immediately return to
Company all papers, books, price lists and price information, lists of sources
of supply, customer lists, processes, inventions, mailing lists, employee lists
and resumes, computer print-outs, manuals, sales literature, Employee's copies
of customer invoices, quotations, purchase orders, any copies of the foregoing
or any documents or notes containing excerpts from the foregoing and all other
documents, data, equipment, and products belonging to or related to the business
of the Company which may be in Employee's possession. If any such information
has been electronically stored, Employee shall return all disks, or other
storage media, containing such information and shall permanently delete such
information from the computer hard drive, of other non removable storage device,
or any computer owned or controlled by Employee after providing the Company a
copy of the information.
G. Employee agrees to assign and hereby assigns to Company all
of Employee's right, title and interest, if any, in and to all inventions,
improvements, patents, trademarks, copyrights, and trade names, which during the
period of Employee's employment by Company, Employee has obtained, made or
conceived or may hereafter make or conceive, either solely or jointly with
others, in the course of such employment, within the scope of Company's
business, work or investigations, or with use of Company's time, employees,
material or facilities, or relating to or suggested by work or problems arising
in Company's business of which Employee has been or may become aware by reason
of Employee's employment. Employee agrees that Employee will execute,
acknowledge and deliver all papers, documents, assignments and other information
as may be required by Company to obtain any patents, trademarks, copyrights,
trade names or other registrations or applications in the name of Company.
H. Employee agrees that the remedy at law for any breach by
Employee of the covenants set forth in the foregoing sections 5A, B, C, D, E, F,
or G is inadequate and the Company, in addition to having an action at law for
damages, shall be entitled to injunctive relief to enforce these covenants.
6. TERMINATION.
A. The Employee and the Company specifically agree that the
employment of Employee may terminate only upon the occurrence of any one or more
of the following events:
(i) The cessation of the business of the
Company, either voluntary or involuntarily;
(ii) The merger, consolidation, reorganization or
dissolution of the Company;
(iii) Death or permanent disability of the
Employee, including but not limited to a
physical or mental disability which renders
Employee incapable of effectively and
efficiently performing his duties hereunder
for a consecutive period of sixty (60) days
or
E-45
<PAGE> 63
for an aggregate of one hundred twenty (120)
days or more during any twelve month period;
(iv) For "Cause," which means:
(a) an act or acts of dishonesty on the
Employee's part or conviction of any felony,
or any crime involving moral turpitude or
entering into a treatment program in lieu of
such conviction;
(b) any material violation by the Employee
of his responsibilities, duties or
obligations hereunder, or failure to perform
his duties as reasonably instructed by the
Board of Directors of the Company. Employee
shall be notified in writing of any such
alleged failure to perform and shall be
given a reasonable time frame in which to
remedy his failure before he is terminated
for cause under this provision;
(c) engaging by Employee in conduct which is
demonstrably and materially injurious to the
Company, monetarily or otherwise, including
but not limited to, any material
misrepresentation related to the performance
of his duties;
(d) any material breach by Employee of this
Agreement. Employee shall be notified in
writing of any such alleged failure to
perform and shall be given a reasonable time
frame in which to remedy his failure before
he is terminated for cause under this
provision;
(e) material breach by Employee of any of
his obligations contained in the Company
handbook for Employees, or such other
document or collection of documents which
set forth Company policy. Employee shall be
notified in writing of any such alleged
failure to perform and shall be given a
reasonable time frame in which to remedy his
failure before he is terminated for cause
under this provision;
(f) failure of the Employee to achieve
within 80% of the stated sales goals for any
given period as reasonably established by
the Board of Directors of Employer from time
to time, and agreed to by Employee; the
parties understand and agree that the goals
for the first year of this Agreement are as
stated in Exhibit 1; and
(v) By either party upon thirty (30) days written
notice.
B. Company shall give Employee thirty (30) days prior written
notice of termination of employment. Company shall have the option: (i) to
retain the services of the Employee for said thirty (30) days, or (ii)
compensate Employee for the number of
E-46
<PAGE> 64
days less than thirty (30) days he received notice at the then current salary
rate for Employee.
C. Except as provided in 6(E), upon termination of the
employment of Employee for any reason whatsoever whether or not the termination
is determined to be for Cause and to protect Trade Secrets and Confidential
Information, the Employee shall be entitled to no further salary or other
compensation, and the Company shall have no further obligations under this
Agreement, and except that portion of any unpaid salary accrued and earned by
the Employee hereunder up to the date of termination.
D. Upon termination of the employment of Employee for any
reason whatsoever, whether or not the termination is determined to be for Cause
under this Section, this Agreement shall continue in full force and effect with
respect to Employee's covenants and agreements set forth in Section 5 above,
including the obligations to refrain from competition with the Company, to
refrain from soliciting agents of the Company, and to protect Trade Secrets or
Confidential Information.
E. Upon termination of Employee by the Employer without Cause,
pursuant to sections 6A(i), 6A(ii) or 6A(v), Employer shall pay Employee
severance pay equal to three times the sum of 1) his base salary in effect at
the time of termination, and 2) the bonuses of Employee for the prior calendar
year. Upon termination of Employee by Employer with Cause, pursuant to section
6A(iv)(f), Employer shall pay Employee severance pay equal to two times the sum
of 1) his base salary in effect at the time of termination, and 2) the bonuses
of Employee for the prior calendar year. Employee understands and agrees that
payment pursuant to this section 6E shall constitute liquidated damages and
Employee shall have no right to any other compensation from Employer in
connection with this Agreement. The compensation payable under this provision
may be made in cash or in common stock of the Employer. The Employer shall have
the discretion to choose cash or Employer common stock for 25% of the payment
made under this section 6E and the Employee shall have the discretion to be paid
either in cash or Employer common stock on the remaining 75%. Employer common
stock shall be valued at the date of payment annually to Employee. The
compensation under this section 6E shall be paid in equal annual installments
payable once every 12 months beginning no later than 3 months following the date
of termination of Employee's employment.
7. NOTICES. All notices, demands and other communications given under
this agreement shall be in writing and shall be deemed effective with hand
delivered or mailed by certified mail, return receipt requested, postage prepaid
to the following addresses:
If to Employee:
Donald T. Zimmerman, Jr.
2564 Handasyde Avenue
Cincinnati, OH 45208
If to Company:
United Shields Corporation
655 Eden Park Drive
E-47
<PAGE> 65
Suite 260
Cincinnati, Ohio 45202
or at such other addresses as the parties may designate in writing.
8. ENTIRE CONTRACT. This Agreement constitutes the entire understanding
and agreement between the Company and the Employee with regard to all matters
contained herein. This Agreement may be amended, supplemented or interpreted at
any time only by written instrument duly executed by all parties.
9. ASSIGNMENT. This Agreement shall not be assignable by the Employee
without the prior written consent of the Company. This Agreement shall, to the
extent not limited hereby, inure to the benefit of and be enforceable by the
parties hereto, and their respective heirs, representatives, successors and
assigns.
10. WAIVER. Any consent by any party to, or waiver of a breach of any
provision of this Agreement by the other, whether express or implied, shall not
constitute a consent to, waiver of, or excuse for any breach of any other
provision or subsequent breach of the same provision.
11. LEGAL CONSTRUCTION. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, that invalidity, illegality or unenforceability
shall not affect any other provision of this agreement, and this Agreement shall
be construed as if the invalid, illegal or unenforceable provision had never
been contained in it.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the law of the state of Ohio.
IN WITNESS WHEREOF, the parties have signed this Agreement on the date
first above written. EMPLOYEE:
/s/ Donald T. Zimmerman, Jr.
------------------------------
Donald T. Zimmerman, Jr.
UNITED SHIELDS CORPORATION
By: /s/ T.J. Tully
------------------------------
Title: CEO
------------------------------
E-48
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