EXHIBIT 2.3
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PALEX, INC.,
ACME BARREL COMPANY, INC.,
ESP REALTY CORP., INC.,
THE XXXXXX XXXXXXXX LIVING TRUST U/T/A DATED JULY 2, 1996
AND
XXXXXX XXXXXXXX
DATED AS OF FEBRUARY 23, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................1
1.2. Interpretation.....................................................4
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. The Merger.........................................................5
2.2. Effective Time of the Merger.......................................5
2.3. Articles of Incorporation, By-laws and Board of Directors of
Surviving Corporation..............................................5
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Company Shares.......................................5
3.2. Conversion of New Acme Shares......................................6
3.3. Exchange of Certificates...........................................6
3.4. Closing............................................................6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
4.1. Due Organization and Qualification.................................6
4.2. Authorization; Non-Contravention; Approvals........................6
4.3. Capitalization.....................................................7
4.4. Pooling-of-Interests Accounting....................................7
4.5. Subsidiaries.......................................................8
4.6. [Intentionally omitted]............................................8
4.7. Liabilities and Obligations........................................8
4.8. Accounts and Notes Receivable......................................8
4.9. Assets.............................................................8
4.10. Material Customers, Contracts and Bartering Commitments...........9
4.11. Permits..........................................................10
4.12. Environmental Matters............................................10
4.13. Labor and Employee Relations.....................................10
4.14. Insurance........................................................11
4.15. Compensation; Employment Agreements..............................11
4.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...11
4.17. Employee Benefit Plans...........................................11
4.18. Litigation and Compliance with Law...............................11
4.19. Taxes............................................................12
4.20. Absence of Changes...............................................12
4.21. Accounts with Banks and Brokerages; Powers of Attorney...........13
4.22. Absence of Certain Business Practices............................14
4.23. Competing Lines of Business; Related-Party Transactions..........14
4.24. Intangible Property..............................................14
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4.25. Disclosure.......................................................14
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX
5.1. Organization......................................................14
5.2. Authorization; Non-Contravention; Approvals.......................15
5.3. PalEx Common Stock................................................15
5.4. Tax Reorganization Representations................................15
5.6. Legal Compliance..................................................16
5.7. Litigation and Compliance with Law................................17
5.8. Disclosure........................................................17
ARTICLE VI
CERTAIN COVENANTS
6.1. Release From Guarantees...........................................17
6.2. Future Cooperation; Tax Matters...................................17
6.3. Expenses..........................................................17
6.4. Registration Rights Agreement.....................................18
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by the Stockholder........................18
7.2. Indemnification by PalEx..........................................18
7.3. Third Person Claims...............................................18
7.4. Indemnification Deductible........................................19
7.5. Indemnification Limitation........................................19
7.6. Indemnification for Negligence of Indemnified Party...............20
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................20
8.2. Equitable Relief..................................................20
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. Execution of Documents Necessary for Pooling Treatment............21
9.2. Restrictions on Resale............................................21
9.3. Tax-Free Reorganization...........................................21
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................22
10.2. Economic Risk; Sophistication....................................22
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10.3. Rule 144 Reporting................................................22
ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................23
11.2. Entire Agreement.................................................23
11.3. Counterparts.....................................................23
11.4. Brokers and Agents...............................................23
11.5. Notices..........................................................23
11.6. Survival of Representations and Warranties.......................24
11.7. Exercise of Rights and Remedies..................................24
11.8. Reformation and Severability.....................................24
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
is made as of the 23rd day of February, 1998, by and among PalEx, Inc., a
Delaware corporation ("PALEX"), Acme Barrel Company, Inc., an Illinois
corporation and subsidiary of PalEx ("NEW ACME"), ESP Realty Corp., Inc., an
Illinois corporation (the "COMPANY"), Xxxxxx Xxxxxxxx and The Xxxxxx Xxxxxxxx
Living Trust u/t/a dated July 2, 1996 (together with Xxxxxx Xxxxxxxx, the
"STOCKHOLDER"), with the Stockholder being the Company's sole stockholder.
WHEREAS, the respective Boards of Directors of New Acme and the Company
(collectively referred to as "CONSTITUENT CORPORATIONS") deem it advisable and
in the best interests of the Constituent Corporations and their respective
stockholders that the Company with and into New Acme (the "MERGER"); and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the stockholders of the Constituent Corporations have approved
the Merger in accordance with the Illinois Act; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Acme
Acquisition, Inc., Acme Barrel Company, Inc. (immediately prior to becoming a
subsidiary of PalEx and New Acme), the former stockholders of Acme Barrel
Company, Inc., Xxxxxx Xxxxxxxx and Xxxxxx X. Xxxxxxxx.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"CLOSING" has the meaning set forth in SECTION 3.4.
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"CLOSING DATE" has the meaning set forth in SECTION 3.4.
"CODE" has the meaning set forth in the third paragraph of this Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY COMMON STOCK" has the meaning set forth in SECTION 3.1.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
paragraph of this Agreement.
"CSC" means, collectively, Consolidated Drum Reconditioning Co., Inc. and
its Affiliates, certain assets of which were acquired by a subsidiary of PalEx
on February 12, 1998.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.2.
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERI" means Environmental Recyclers of Colorado Inc., a Colorado
corporation.
"ERI ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Western
Container Acquisition, Inc., ERI and the stockholders of ERI.
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"ERISA" has the meaning set forth in SECTION 4.17.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"ILLINOIS ACT" means the Illinois Business Corporation Act of 1983, as
amended.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 7.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 5.6.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 4.10.
"MERGER" has the meaning set forth in the second paragraph of this
Agreement.
"MERGER FILING" has the meaning set forth in SECTION 2.2.
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"NEW ACME" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 4.4.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 4.11.
"PERMITTED ENCUMBRANCES" means (a) Encumbrances for property or ad valorem
Taxes not yet due and payable or which are being contested in good faith and by
appropriate proceedings, and (b) obligations under operating and capital leases
described in SCHEDULE 4.10.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 7.5.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION 6.4.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"STOCKHOLDER" has the meaning set forth in the first paragraph of this
Agreement.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1.
"TAXES" has the meaning set forth in SECTION 4.19.
"THIRD PERSON" has the meaning set forth in SECTION 7.3.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
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(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the Illinois Act, the
Company shall be merged with and into New Acme (the "MERGER") and the separate
existence of the Company shall thereupon cease. New Acme shall be the surviving
corporation in the Merger (hereinafter sometimes referred to as the "SURVIVING
CORPORATION").
2.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "EFFECTIVE TIME") as (a) holders of a majority of the Company
Common Stock approve the Merger, and (b) articles of merger, in form mutually
acceptable to PalEx and the Company, are filed with the Secretary of State of
the State Illinois (the "MERGER FILING"). The Merger Filing shall be made
simultaneously with or as soon as practicable after the execution of this
Agreement and the Closing.
2.3. ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. As a result of the Merger and at the Effective Time:
(a) the Articles of Incorporation of New Acme in effect immediately
prior to the Effective Time shall become the Articles of Incorporation of
the Surviving Corporation, and thereafter may be amended in accordance
with their terms and as provided in the Illinois Act;
(b) the By-laws of New Acme in effect immediately prior to the
Effective Time shall become the By-laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided
by the Articles of Incorporation of the Surviving Corporation and the
Illinois Act; and
(c) the Board of Directors of New Acme as constituted immediately
prior to the Effective Time shall be the Board of Directors of the
Surviving Corporation.
ARTICLE III
CONVERSION OF SHARES
3.1. CONVERSION OF COMPANY SHARES. At the Effective Time, by virtue of the
Merger, and without any action on the part of any holder of any capital stock of
the Company, the issued and outstanding shares of common stock, no par value, of
the Company as of the Effective Time (the "COMPANY COMMON STOCK") shall be
converted into the right to receive, and become exchangeable for, an aggregate
of 157,869 shares of PalEx Common Stock, which shares of PalEx Common Stock
shall be exchangeable for all the Company Common Stock at the Effective Time and
issued to the Stockholder.
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3.2. CONVERSION OF NEW ACME SHARES. At the Effective Time, by virtue of
the Merger and without any action on the part of PalEx Container Systems, Inc.,
a Delaware corporation and wholly-owned subsidiary of PalEx, as the sole holder
of capital stock of New Acme, each issued and outstanding share of common stock,
par value $10.00 per share, of New Acme shall remain issued and outstanding as
one share of common stock, $10.00 par value per share, of the Surviving
Corporation.
3.3. EXCHANGE OF CERTIFICATES. At the Closing, (a) the Stockholder shall
furnish to PalEx the certificates representing its Company Common Stock, duly
endorsed in blank by the Stockholder or accompanied by duly executed blank stock
powers, and (b) PalEx shall deliver to the Stockholder certificates representing
the shares of PalEx Common Stock to be delivered to the Stockholder pursuant to
SECTION 3.1 and in accordance with SECTION 9.2. The Stockholder agrees promptly
to cure any deficiencies with respect to the endorsement of the certificates or
other documents of conveyance with respect to the Company Common Stock or with
respect to the stock powers accompanying the Company Common Stock.
3.4. CLOSING. The consummation of the Merger and exchange of shares
described in SECTION 3.3 hereof and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 0000 Xxxx
Xxx Xxxx., Xxxxx 000, Xxxxxxx, Xxxxx, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the
Stockholder may mutually agree, which date is herein referred to as the "CLOSING
DATE."
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder represents and warrants to PalEx and New Acme as follows:
4.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Illinois and is duly authorized and qualified to do business under all
applicable Laws and to carry on its business in the places and in the manner as
now conducted. The Company has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
such business is currently being conducted. SCHEDULE 4.1 contains a list of all
jurisdictions in which the Company is authorized or qualified to do business.
True, complete and correct copies of the Articles of Incorporation and By-laws,
each as amended, of the Company are attached hereto as SCHEDULE 4.1. Correct and
complete copies of all stock records and minute books of the Company for the
past five years have been provided to PalEx, and correct and complete copies of
all other stock records and minute books of the Company have been made available
to PalEx.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to effect the Merger. The Stockholder has
the full legal right, power and authority to enter into this Agreement.
The execution, delivery and performance of this Agreement have been
approved by the board of directors of the Company and by the Stockholder.
No additional corporate proceedings on the part of the Company is
necessary to authorize the execution and delivery of this Agreement and
the consummation by the Company of the transactions contemplated hereby.
This
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Agreement has been duly and validly executed and delivered by the Company
and the Stockholder, and, assuming the due authorization, execution and
delivery hereof by PalEx and New Acme, constitutes a valid and binding
agreement of the Company and the Stockholder, enforceable against the
Stockholder in accordance with its terms.
(b) The execution and delivery of this Agreement by the Company and
the Stockholder do not, and the consummation by the Company and the
Stockholder of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the Articles of Incorporation or By-laws
of the Company, (ii) any Laws applicable to the Stockholder or the Company
or any of its properties or assets, or (iii) except as set forth in
SCHEDULE 4.2, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, lease or other instrument, obligation or
agreement of any kind to which the Stockholder or the Company is now a
party or by which the Company or any of its properties or assets may be
bound or affected.
(c) Except for the Merger Filing and as set forth in SCHEDULE 4.2,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority or third
party is necessary for the execution and delivery of this Agreement by the
Company and the Stockholder or the consummation by the Company and the
Stockholder of the transactions contemplated hereby. Except as set forth
in SCHEDULE 4.2, none of the customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by the
Company and the Stockholder and the consummation of the transactions
contemplated hereby.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists
solely of 1,000 shares of Company Common Stock, all of which are issued and
outstanding. All of the issued and outstanding shares of Company Common Stock
are owned beneficially and of record by the Stockholder. All of the issued and
outstanding shares of the Company Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, and were offered, issued, sold
and delivered by the Company in compliance with all applicable Laws, including,
without limitation, those Laws concerning the issuance of securities. None of
such shares were issued in violation of the preemptive rights of any past or
present stockholder. At the Effective Time, by virtue of the Merger, assuming
New Acme is a wholly-owned subsidiary of PalEx, PalEx will acquire good and
marketable title in all the outstanding capital stock of the Surviving
Corporation, free and clear of all Encumbrances except for those created by
PalEx and those set forth in SCHEDULE 4.3. Except as set forth in SCHEDULE 4.3,
no subscription, option, warrant, call, convertible or exchangeable security,
other conversion right or commitment of any kind exists which obligates the
Company to issue any of its capital stock or the Stockholder to transfer any of
the Company Common Stock.
4.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there
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has not been any sale or spin-off of a significant amount of assets of the
Company or any affiliate of the Company other than in the ordinary course of
business. The Company owns no capital stock of PalEx. The Company has not
acquired any of its capital stock during the past two years. Except as set forth
in SCHEDULE 4.4, the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its capital stock or any interest
therein or to pay any dividend or make any distribution in respect thereof.
Neither the voting stock structure of the Company nor the relative ownership of
shares among any of the Company's stockholders has been altered or changed
within the last two years in contemplation of the Merger. None of the shares of
Company Common Stock was issued pursuant to awards, grants or bonuses, and there
has been no transaction or action taken with respect to the equity ownership of
the Company in contemplation of the Merger that would prevent PalEx from
accounting for the Merger under the pooling-of-interests method of accounting in
accordance with Opinion No. 16 of the Accounting Principles Board ("OPINION NO.
16").
4.5. SUBSIDIARIES. Except as set forth in SCHEDULE 4.5, the Company does
not own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into or exchangeable for capital stock or
any other equity interest in any corporation, association or other business
entity. Except as set forth in SCHEDULE 4.5, the Company is not, directly or
indirectly, a participant in any joint venture, limited liability company,
partnership or other noncorporate entity.
4.6. [INTENTIONALLY OMITTED].
4.7. LIABILITIES AND OBLIGATIONS. Except (a) as set forth in SCHEDULE 4.7,
(b) obligations as a landlord under its leases with New Acme, and (c) Permitted
Encumbrances , the Company does not have any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature.
4.8. ACCOUNTS AND NOTES RECEIVABLE. The Company has no accounts or notes
receivable other than rent receivables with respect to rental payments owed by
New Acme.
4.9. ASSETS.
(a) SCHEDULE 4.9 sets forth an accurate list of all real and
personal property owned or leased by the Company, including in each case
true, complete and correct copies of leases for significant equipment and
for all real property leased by the Company and descriptions of all real
property on which buildings, warehouses, workshops, garages and other
structures used in the operation of the business of the Company are
situated. SCHEDULE 4.9 indicates which assets used in the operation of the
business of the Company are currently owned by the Stockholder or
Affiliates of the Company or the Stockholder. Except as specifically
identified in SCHEDULE 4.9, to the knowledge of the Company after due
inquiry, all of the tangible assets, vehicles and other significant
machinery and equipment of the Company listed in SCHEDULE 4.9 are in good
working order and condition, ordinary wear and tear excepted, and have
been maintained in accordance with standard industry practices. All fixed
assets used by the Company in its business are either owned by the Company
or leased under agreements identified in SCHEDULE 4.9. All leases set
forth in SCHEDULE 4.9 are in full force and effect and constitute valid
and binding agreements of the Company, and to the knowledge of the
Company, the other parties thereto in accordance with their respective
terms. SCHEDULE 4.9 contains true, complete and correct copies of all
title reports and title insurance policies
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received or owned by the Company. SCHEDULE 4.9 also includes a summary
description of all plans or projects involving the opening of new
operations, expansion of existing operations or the acquisition of any
real property or existing business, to which management of the Company has
devoted any significant effort or expenditure in the two-year period prior
to the date of the Agreement, which if pursued by the Company would
require additional expenditures of capital.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in SCHEDULE 4.9, free and
clear of all Encumbrances other than Permitted Encumbrances and those set
forth in SCHEDULE 4.9.
(c) The tangible and intangible assets of the Company include all
the assets used in the operation of the business of the Company as
conducted at April 30, 1997.
(d) Except as set forth in this SECTION 4.9 and in the other
representations and warranties in this Agreement, the Company and the
Stockholder are making no representations or warranties as to the
condition of the assets of the Company, including, without limitation, any
implied warranties or any representation or warranty as to merchantability
or fitness for any particular purpose and, subject to the representations
set forth in this Agreement, such assets are being purchased "as is,"
"where is" and with all faults.
4.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 4.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues (the "MATERIAL
CUSTOMERS"), and (ii) all material executory contracts, commitments and
similar agreements to which the Company is currently a party or by which
it or any of its properties is bound, including, but not limited to, (A)
all customer contracts in excess of $10,000, individually, or $25,000 in
the aggregate, including, without limitation, consignment contracts, (B)
contracts with any labor organizations, (C) leases providing for annual
rental payments in excess of $5,000, individually, or $10,000 in the
aggregate, (D) loan agreements, (E) pledge and security agreements, (F)
indemnity or guaranty agreements or obligations , (G) bonds, (H) notes,
(I) mortgages, (J) joint venture or partnership agreements, (K) options to
purchase real or personal property, and (L) agreements relating to the
purchase or sale by the Company of assets (other than oral agreements
relating to sales of inventory or services in the ordinary course of
business, consistent with past practices) or securities for more than
$5,000, individually, or $10,000 in the aggregate. Prior to the date
hereof, the Company has made available to PalEx complete and correct
copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 4.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, threatened to cancel or substantially reduce its purchases of the
Company's products or services, and (ii) the Company is in compliance with
all material commitments and obligations pertaining to it under such
agreements and is not in default under any the agreements described in
SUBSECTION (A), no notice of default has been received by the Company, and
the Stockholder and the Company are aware of no basis therefor.
9
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) SCHEDULE 4.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company is a party.
The Company has a sufficient supply of uncommitted inventory to fulfill
its bartering obligations with third parties.
4.11. PERMITS. SCHEDULE 4.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company, including, without
limitation, permits, licenses and operating authorizations, titles (including
motor vehicle titles and current registrations), fuel permits, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company (the "PERMITS"). The Permits are valid,
and the Company has not received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such license, operating
authorization, franchise, permit or other governmental authorization. The
Permits are all the permits that are required by Law for the operation of the
business of the Company and the ownership of the assets of the Company. The
Company has conducted and is conduct ing its business in substantial compliance
with the requirements, standards, criteria and conditions set forth in the
Permits, as well as the applicable orders, approvals and variances related
thereto, and is not in violation of any of the foregoing. Except as specifically
provided in SCHEDULE 4.11, the transactions contemplated by this Agreement will
not result in a default under or a breach or violation of, or adversely affect
the rights and benefits afforded to the Company by, any Permits.
4.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.12, (a) the
Company has complied with and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) the Company has obtained and complied with
all necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned or
operated by the Company where Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (c) there have been no "releases" or threats
of "releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by the Company; (d) there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation or disposal Hazardous Substances
which is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Surviving
Corporation or PalEx for any clean-up cost, remedial work, damage to natural
resources or personal injury, including, but not limited to, any claim under (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii) the
Hazardous Materials Transportation Act, or (iv) comparable state and local
statutes and regulations; and (e) the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment.
4.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 4.13,
the Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in SCHEDULE 4.13, no employees of the Company are
represented by any labor union or covered by any collective bargaining
10
agreement nor, to the Company's or the Stockholder's knowledge, is any campaign
to establish such representation in progress. There is no pending or, to the
Company's or the Stockholder's knowledge, threatened labor dispute involving the
Company and any group of its employees nor has the Company experienced any
significant labor interruptions over the past five years. Neither the Company
nor any Stockholder has any knowledge of any significant issues or problems in
connection with the relationship of the Company with its employees.
4.14. INSURANCE. SCHEDULE 4.14 sets forth an accurate list as of the date
hereof of all insurance policies carried by the Company and of all insurance
loss runs or workmen's compensation claims received for the past five policy
years. Except as set forth in SCHEDULE 4.14, none of such policies is a "claims
made" policy. To the Company's knowledge, after due inquiry, the insurance
policies set forth in SCHEDULE 4.14 provide adequate coverage against the risks
involved in the Company's business. Such policies are currently in full force
and effect.
4.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 4.15 sets forth an
accurate schedule of all officers, directors and employees of the Company,
listing the rate of compensation (and the portions thereof attributable to
salary, bonus, benefits and other compensation, respectively) of each such
person as of the date hereof. Attached to SCHEDULE 4.15 are true, complete and
correct copies of each employment or consulting agreement with any employee of
the Company or the Stockholder.
4.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 4.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
4.17. EMPLOYEE BENEFIT PLANS.
(a) The Company has no current or future obligation or liability to
any present or former employee of the Company, or to such present or
former employee's dependents or beneficiaries, nor any current or future
right to benefits under "EMPLOYEE BENEFIT PLAN," as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Company does not sponsor, maintain or contribute currently,
and has not sponsored, maintained or contributed at any time during the
preceding five years, to any plan, program, fund or arrangement that
constitutes an employee pension benefit plan. For purposes of this
Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the meaning
given that term in Section 3(2) of ERISA.
(b) The Company has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service.
(c) The Company has not made any promises of retirement or other
benefits to employees. The Company does not maintain nor has it
established or ever participated in a multiple employer welfare benefit
arrangement as described in Section 3(40)(A) of ERISA.
4.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
4.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and Stockholder, threatened against or affecting the
Company, at law or in equity, or before or by any Governmental
11
Authority having jurisdiction over the Company. No written notice of any claim,
action, suit or proceeding, whether pending or threatened, has been received by
the Company and, to the Stockholder's and the Company's knowledge, there is no
basis therefor. Except to the extent set forth in SCHEDULE 4.18, the Company has
conducted and is conducting its business in compliance with all Laws applicable
to the Company, its assets or the operation of its business.
4.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full all Taxes for all
periods ending at or prior to the Closing Date. The Company has duly withheld
and paid or remitted all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other person or entity that required withholding under
any applicable Law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation. Except as set forth
in SCHEDULE 4.19, there are no examinations in progress or claims against the
Company relating to Taxes for any period or periods prior to and including the
date hereof and no written notice of any claim for Taxes, whether pending or
threatened, has been received. The Company has not granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. The Company is not a party to any Tax
allocation or sharing agreement and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes. True and complete
copies of (a) any tax examinations, (b) extensions of statutory limitations and
(c) the federal, state and local Tax returns of the Company for the last three
fiscal years have been previously provided to PalEx. There are no requests for
ruling in respect of any Tax pending between the Company and any Taxing
authority. The Company currently utilizes the accrual method of accounting for
income tax purposes. Such method of accounting has not changed in the past five
years.
4.20. ABSENCE OF CHANGES. Except as set forth in SCHEDULE 4.20, the
Company has conducted its operations in the ordinary course and there has not
been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company, individually or in the aggregate;
(c) any change in the authorized capital stock of the Company or in
its outstanding securities or any change in the Stockholder's ownership
interest in the Company or any grant of any options, warrants, calls,
conversion rights or commitments;
12
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation payable or to become payable by
the Company to the Stockholder or any of its officers, directors,
employees, consultants or agents, except for ordinary and customary
bonuses and salary increases for employees in accordance with past
practice, which bonuses and salary increases are set forth in SCHEDULE
4.20;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, the Stockholder and its Affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by
this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(l) any waiver of any material rights or claims of the Company;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company is a party
or any of its property is subject; or
(n) any other material transaction by the Company outside the
ordinary course of business.
4.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
4.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company
has accounts or safe deposit boxes; (b) the names in which the accounts or boxes
are held; (c) the type of account and the cash, cash equivalents and securities
held in such account as of the second business day prior to the Closing, none of
which assets have been withdrawn from such accounts since such date except for
bona fide business purposes in the ordinary course of the business of the
Company; and (d) the name of each person authorized to draw thereon or have
access thereto. SCHEDULE 4.21
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also sets forth the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms thereof.
4.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.
4.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 4.23, neither the Stockholder nor any other Affiliate of
the Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business which is a competitor, lessor, lessee, customer or supplier of the
Company. Except as set forth in SCHEDULE 4.23, no officer or director of the
Company nor the Stockholder has nor, during the period beginning January 1, 1996
through the date hereof, had any interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of the Company.
4.24. INTANGIBLE PROPERTY. SCHEDULE 4.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company. The Company owns or possesses, and
the assets of the Company include, sufficient legal rights to use all of such
items without conflict with or infringement of the rights of others.
4.25. DISCLOSURE. The Stockholder and the Company have provided PalEx or
its representatives all the information that PalEx has requested in analyzing
whether to consummate the Merger and the other transactions contemplated by this
Agreement. None of the information so provided nor any representation or
warranty of the Company or the Stockholder to PalEx or New Acme in this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX
PalEx represents and warrants to the Stockholder as follows:
5.1. ORGANIZATION. PalEx is a corporation duly organized, validly existing
and in good standing under the Laws of the State of Delaware, and is duly
authorized and qualified under all applicable Laws to carry on its business in
the places and in the manner now conducted. PalEx has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. Correct and complete
copies of PalEx's minute books have been made available to the Company.
14
5.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) PalEx has the full legal right, power and authority to enter
into this Agreement and the Registration Rights Agreement and to
consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of this Agreement and the Registration
Rights Agreement have been approved by the board of directors of PalEx. No
additional corporate proceedings on the part of PalEx are necessary to
authorize the execution and delivery of this Agreement or the Registration
Rights Agreement and the consummation by PalEx of the transactions
contemplated hereby. This Agreement and the Registration Rights Agreement
have been duly and validly executed and delivered by PalEx, and, assuming
the due authorization, execution and delivery by the Company and the
Stockholder, constitutes valid and binding agreements of PalEx,
enforceable against PalEx in accordance with its terms.
(b) The execution and delivery of this Agreement and the
Registration Rights Agreement by PalEx do not, and the consummation by
PalEx of the transactions contemplated hereby will not, violate or result
in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under any
of the terms, conditions or provisions of (i) the Certificate of
Incorporation or By-Laws of PalEx, (ii) any Law applicable to either PalEx
or any of its properties or assets or (iii) any material note, bond,
mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement
of any kind to which PalEx is now a party or by which PalEx or any of its
properties or assets may be bound or affected.
(c) Except for the Merger Filing and such filings as may be required
under federal or state securities Laws, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the Registration Rights Agreement by PalEx or the
consummation by PalEx of the transactions contemplated hereby or thereby.
5.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
the Stockholder pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable. The issuance of PalEx Common Stock pursuant to the Merger
will transfer to the Stockholder valid title to such shares of PalEx Common
Stock, free and clear of all Encumbrances, except for any Encumbrances created
by the Stockholder.
5.4. TAX REORGANIZATION REPRESENTATIONS.
(a) Prior to the Merger, PalEx will be in control of New Acme within
the meaning of Section 368(c) of the Code.
(b) PalEx has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock that would result in
PalEx losing control of the Surviving Corporation within the meaning of
Section 368(c) of the Code.
15
(c) PalEx has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) PalEx has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation
controlled by PalEx; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by PalEx.
(e) Following the Closing, PalEx's intention is that the Surviving
Corporation will continue the historic business of the Company or use a
significant portion of the historic business assets of the Company in a
business, all as required to satisfy the "continuity of business
enterprise" requirement under Section 368 of the Code.
(f) PalEx does not own, nor has it owned during the past five years,
any shares of the stock of the Company.
(g) Each of PalEx and the Surviving Corporation is undertaking the
Merger for a bona fide business purpose and not merely for the avoidance
of federal income tax.
(h) PalEx is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
5.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended (the "1933 ACT"), the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate Act
and the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or, except for
disclosure of the acquisition of the assets, and assumption of the liabilities,
of CSC and its Affiliates, omits to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
5.6. LEGAL COMPLIANCE. PalEx is not (a) in violation of its charter or
by-laws, (b) in default in any material respect, and no event has occurred that,
with notice or lapse of time or both, would constitute a material default under
any in material agreement to which PalEx is party or by which its assets are
subject, or (c) in, or, as to CSC, to the actual knowledge of PalEx in,
violation, in any material respect, of any material Law to which either PalEx or
their properties or assets may be subject, in each case, except to the extent
that such violation or default would not reasonably be expected have a material
adverse effect on the business, operations, properties, condition (financial or
otherwise), assets, liabilities (contingent or otherwise), or results of
operations of PalEx and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE
EFFECT").
16
5.7. LITIGATION AND COMPLIANCE WITH LAW. There are no claims, actions,
suits or proceedings, pending or, to the knowledge of PalEx, threatened against
PalEx, at law or in equity, before or by any Governmental Authority having
jurisdiction over PalEx that, if adversely determined against PalEx would
reasonably be expected to have a Material Adverse Effect. PalEx has conducted
and is conducting its business, and to the actual knowledge of PalEx, CSC is
conducting its business, in compliance with all applicable Laws, except to the
extent noncompliance with such Laws would not reasonably be expected to have a
Material Adverse Effect.
5.8. DISCLOSURE. PalEx has fully provided the Stockholder or its
representatives with all the information that the Stockholder has requested in
analyzing whether to consummate the Merger. None of the information so provided
nor any representation or warranty of PalEx contained in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE VI
CERTAIN COVENANTS
6.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have the Stockholder released from the personal guarantees of
the Company indebtedness identified in SCHEDULE 6.1. PalEx hereby agrees to
indemnify the Stockholder and hold the Stockholder harmless for any amounts that
the Stockholder is required to pay in connection with the enforcement of any
obligations under such personal guarantees after the Closing, including without
limitation any reasonable attorneys' fees and expenses incurred in connection
therewith.
6.2. FUTURE COOPERATION; TAX MATTERS. The Stockholder and PalEx shall each
deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Stockholder will cooperate and use its
commercially reasonable best efforts to have the present officers, directors and
employees of the Company cooperate with PalEx, New Acme and the Surviving
Corporation at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing. The Stockholder will cooperate with the Surviving
Corporation in the preparation of all tax returns covering the period from the
beginning of the Company's current tax year through the Closing. In addition,
PalEx will provide the Stockholder with access to such of its books and records
as may be reasonably requested by the Stockholder in connection with federal,
state and local tax matters relating to periods prior to the Closing. The party
requesting cooperation, information or actions under this SECTION 6.2 shall
reimburse the other party for all reasonable out-of-pocket costs and expenses
paid or incurred in connection therewith, which costs and expenses shall not,
HOWEVER, include per diem charges for employees or allocations of overhead
charges.
6.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Stockholder will pay its fees, expenses and
disbursements and those of its and the Company's agents, representatives,
financial advisors,
17
accountants and counsel incurred in connection with the execution, delivery and
performance of this Agreement and any amendments hereto and the consummation of
the transactions contemplated hereby; PROVIDED, HOWEVER, that the Surviving
Corporation will pay such fees, expenses and disbursements up to, but not in
excess of, an amount equal to (a) $1,000,000 less (b) any fees, expenses and
disbursements of Western Container Limited Liability Company, a Wyoming limited
liability company, Acme Barrel Company, Inc. (prior to becoming a subsidiary of
PalEx) or ERI paid by PalEx, the Surviving Corporation or any Affiliate of PalEx
or the Surviving Corporation, or for which any such party is liable.
6.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and the Stockholder shall enter into a mutually acceptable
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT".
ARTICLE VII
INDEMNIFICATION
The Stockholder, PalEx and New Acme each make the following covenants:
7.1. GENERAL INDEMNIFICATION BY THE STOCKHOLDER. Subject to SECTIONS 7.4
and 7.5, the Stockholder covenants and agrees that it will indemnify, defend,
protect and hold harmless PalEx, New Acme and the Surviving Corporation, and
their respective officers, directors, employees, stockholders, agents,
representatives and Affiliates, at all times from and after the date of this
Agreement until the Expiration Date from and against all Losses incurred by any
of such indemnified persons as a result of or arising from (a) any breach of the
representations and warranties of the Stockholder set forth herein or in the
Schedules or certificates delivered in connection herewith, (b) any breach or
nonfulfillment of any covenant or agreement on the part of the Stockholder or
the Company under this Agreement, and (c) all income Taxes payable by the
Company for all periods prior to and including the Closing Date.
7.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholder and its agents,
representatives, Affiliates , beneficiaries and heirs and employees at all times
from and after the date of this Agreement until the Expiration Date from and
against all Losses incurred by any of such indemnified persons as a result of or
arising from (a) any breach of the representations and warranties of PalEx set
forth herein or in the Schedules or certificates attached hereto, and (b) any
breach or nonfulfillment of any covenant or agreement on the part of PalEx under
this Agreement.
7.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 7.1, or 7.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith.
18
If the Indemnifying Party undertakes to defend or settle, it shall promptly
notify the Indemnified Party of its intention to do so, and the Indemnified
Party shall cooperate with the Indemnifying Party and its counsel in all
commercially reasonable respects in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be limited to, furnishing
the Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof. The Indemnifying Party
shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
7.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholder, on the one hand,
nor PalEx, New Acme and the Surviving Corporation, on the other hand, shall be
entitled to indemnification from the other under the provisions of SECTION
7.1(A) or SECTION 7.2(A), as the case may be, until such time as, and only to
the extent that, the claims subject to indemnification by such other party
exceed, in the aggregate, $20,000. Notwithstanding the foregoing, the
limitations set forth in this SECTION 7.4 shall not apply to fraudulent
misrepresentations.
7.5. INDEMNIFICATION LIMITATION.
(a) Subject to SECTIONS 7.4, the aggregate indemnification
obligation of the Stockholder under SECTION 7.1(A) shall be limited to 50%
of (a) the value of any shares of PalEx Common Stock that (i) were
received by the Stockholder in (A) the Merger and/or (B) the merger of
Acme Barrel Company, Inc. into a subsidiary of PalEx on the date hereof,
and/or (C) the merger of ERI into a subsidiary of PalEx on the date hereof
(subject, in each case, to appropriate adjustments in the event of any
stock dividend on, or split-up or other recapitalization of, the PalEx
Common Stock) and (ii) have not been sold by the Stockholder in a bona
fide arms'-length transaction to a third party that is not an Affiliate of
the Stockholder (collectively, the "PURCHASE PRICE SHARES"), plus (b) the
gross proceeds from the sale of Purchase Price Shares in bona fide
arms'-length transactions to a third
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party that is not an Affiliate of the Stockholder, less (c) the amount of
any Losses (as such term is defined in the Acme Acquisition Agreement and
the ERI Acquisition Agreement, respectively) paid by the Stockholder as an
indemnifying party under the ERI Acquisition Agreement or the Acme
Acquisition Agreement. Indemnification claims under this ARTICLE VII shall
be settled first from the sale or recovery of Purchase Price Shares, to
the extent thereof, and thereafter, from the gross proceeds from prior
bona fide arms'-length sales of Purchase Price Shares to third parties
that are not Affiliates of the Stockholder.
(b) For purposes of this SECTION 7.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by the Stockholder (either by agreement or pursuant
to a judgment or binding determination by an arbitrator) in accordance
with this ARTICLE VII, as reported on The Nasdaq Stock Market or such
other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 7.5 shall not apply to fraudulent
misrepresentations.
7.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VII INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. The Stockholder recognizes and acknowledges that it had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company, such as lists
of customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Surviving Corporation. The Stockholder agrees that it will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose whatsoever, except as is required in the course of
performing his duties to the Surviving Corporation and/or PalEx, unless (a) such
information becomes known to the public generally through no fault of the
Stockholder, or (b) disclosure is required by Law, PROVIDED that prior to
disclosing any information pursuant to this clause (b) the Stockholder shall, if
possible, give prior written notice thereof to PalEx and the Surviving
Corporation and provide PalEx with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by the Stockholder of the
provisions of this Section, PalEx shall be entitled to an injunction restraining
such the Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
20
irreparable damage that would be caused for which the Surviving Corporation
and/or PalEx would have no other adequate remedy, the Stockholder agrees that
the foregoing covenants may be enforced against him by injunctions, restraining
orders and other equitable actions.
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
the Stockholder and the President and Chief Financial Officer of the Company
will execute any documentation reasonably required by PalEx's independent public
accountants to enable PalEx to account for the Merger as a pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed the Stockholder that PalEx
intends to account for the Merger as a pooling-of-interests under Opinion No.
16. PalEx has also informed the Stockholder that its ability to account for the
Merger as a pooling-of-interests was a material factor considered by PalEx in
its decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by PalEx of consolidated
financial results which include results of the combined operations of the
Company and PalEx for at least 30 days on a consolidated basis following the
Closing, the Stockholder shall not sell, offer to sell, or otherwise transfer or
dispose of, any shares of the PalEx Common Stock received by the Stockholder,
engage in put, call, short-sale, straddle or similar transactions, or in any
other way reduce the Stockholder's risks of owning shares of PalEx. The
certificates evidencing the PalEx Common Stock to be received by the Stockholder
will bear a legend substantially in the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
9.3. TAX-FREE REORGANIZATION. PalEx and the Stockholder are entering into
this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes, except to the extent of any
"boot" received, and neither PalEx nor the Stockholder will not take any actions
that disqualify the Merger for such treatment.
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. The Stockholder acknowledges the shares of
PalEx Common Stock issued at the Closing in accordance with the terms of this
Agreement (the "RESTRICTED SHARES") will not be registered under the 1933 Act
and therefore may not be resold without compliance with the 1933 Act. The
Restricted Shares are being or will be acquired by Stockholder solely for its
own accounts, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of them in connection with a
distribution. The Stockholder covenants, warrants and represents that none of
the Restricted Shares will be, directly or indirectly, offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all of the applicable provisions of the 1933 Act and the rules
and regulations of the SEC. Certificates representing the Restricted Shares
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. The Stockholder is able to bear the
economic risk of an investment in the Restricted Shares and can afford to
sustain a total loss of such investment. The Stockholder has such knowledge and
experience in financial and business matters that it or he is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its or his own interests in connection with the acquisition
of the Restricted Shares pursuant hereto. The Stockholder represents to PalEx
that it or he is an "accredited investor," as that term is defined in Regulation
D under the 1933 Act. The Stockholder or its or his representatives have had an
adequate opportunity to ask questions and receive answers from the officers of
PalEx concerning, among other matters, PalEx, its management, its plans for the
operation of its business and potential additional acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as the
Stockholder holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to the Stockholder upon written request a written
statement by PalEx as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of
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the most recent annual or quarterly report of PalEx, and such other
reports and documents so filed as the Stockholder may reasonably request
in availing itself of any rule or regulation of the SEC allowing the
Stockholder to sell any such shares without registration
ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholder.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholder, the
Company, New Acme and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Stockholder, the
Surviving Corporation and PalEx, acting through their respective officers, duly
authorized by their respective Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Except for the Stockholder's engagement of DN
Partners LLC in connection with the Acme Acquisition Agreement, each party
hereto represents and warrants that it employed no broker or agent in connection
with the transactions contemplated by this Agreement. Subject to SECTION 6.3,
each party agrees to indemnify each other party against all loss, cost, damages
or expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, New Acme or the Surviving Corporation, addressed to
them at:
PalEx, Inc.
0000 Xxxx Xxx Xxxx.
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxx
23
(b) If to the Stockholder, addressed as follows:
c/o Acme Barrel Company, Inc.
0000 X. 00xx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
With a copy (which shall not constitute notice) to:
Barack Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx & Xxxxxxxxx
000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE IV and ARTICLE V shall survive the Closing for a
period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 4.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 4.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_____________________________________
Xxxxxx X. Xxxxx
Vice President and General Counsel
ACME BARREL COMPANY, INC.
By:_____________________________________
Xxxxxx Xxxxx
Vice President
ESP REALTY CORP., INC.
By:_____________________________________
Xxxxxx Xxxxxxxx
President
THE XXXXXX XXXXXXXX LIVING TRUST U/T/A DATED
JULY 2, 1996
By:_____________________________________
_____________________________________
Trustee
________________________________________
Xxxxxx Xxxxxxxx, Individually
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