EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
PALEX, INC.,
CONTAINER SERVICES COMPANY SW ACQUISITION, INC.,
CONTAINER SERVICES COMPANY NW ACQUISITION, INC.,
CONSOLIDATED DRUM RECONDITIONING CO., INC.,
CDRCO HC, LLC,
CDRCO SW, LLC,
CDRCO NW, LLC,
XXXXXX XXXX,
AND
XXXXXX XXXXXXX
DATED AS OF FEBRUARY 12, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions......................................................1
1.2. Interpretation...................................................8
ARTICLE II
THE PLAN OF ACQUISITION
2.1. The Acquisition of Assets........................................8
2.2. Purchase Price; Southgate Purchase Price.........................9
2.3. Assumed Liabilities; Southgate Assumed Liabilities...............9
2.4. Covenants Pending Southgate Closing; Conditions to Southgate
Closing.........................................................10
2.5. Conveyance Documents............................................10
2.6. Allocation of Purchase Price and Southgate Purchase Price.......11
2.7. Closing.........................................................11
2.8. Southgate Moving Expenses and Shutdown Holdback.................11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
3.1. Due Organization and Qualification..............................12
3.2. Authorization; Non-Contravention; Approvals.....................13
3.3. Ownership of the Company........................................14
3.4. Financial Statements............................................14
3.5. Liabilities and Obligations.....................................15
3.6. Accounts and Notes Receivable...................................15
3.7. Assets..........................................................15
3.8. Material Customers, Contracts...................................16
3.9. Permits.........................................................17
3.10. Environmental Matters..........................................17
3.11. Labor and Employee Relations...................................18
3.12. Insurance......................................................18
3.13. Compensation; Employment Agreements............................18
3.14. Employee Benefit Plans.........................................18
3.15. Litigation and Compliance with Law.............................20
3.16. Taxes..........................................................21
3.17. Absence of Changes.............................................21
3.18. Accounts with Banks and Brokerages; Powers of Attorney.........22
3.19. Absence of Certain Business Practices..........................22
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3.20. Competing Lines of Business; Related-Party Transactions........22
3.21. Intangible Property............................................22
3.22. Noncompetition, Confidentiality and Nonsolicitation Agreements.23
3.23. Disclosure.....................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX
4.1. Organization....................................................23
4.2. Authorization; Non-Contravention; Approvals.....................23
4.3. PalEx Common Stock..............................................24
4.4. Litigation......................................................24
4.6. Absence of Undisclosed Liabilities..............................25
4.7. Conduct in the Ordinary Course of Business......................25
4.8. Disclosure......................................................25
ARTICLE V
CERTAIN COVENANTS
5.1. Release From Guarantees.........................................25
5.2. Future Cooperation; Tax Matters.................................26
5.3. Expenses........................................................26
5.4. Employment Agreement............................................26
5.5. Stock Options...................................................26
5.6. Legal Opinion...................................................27
5.7. Registration Rights.............................................27
5.8. Sales Taxes.....................................................30
5.9. Employees.......................................................30
ARTICLE VI
INDEMNIFICATION
6.1. General Indemnification by the Company and the Stockholders.....31
6.2. Indemnification by PalEx........................................31
6.3. Third Person Claims.............................................32
6.4. Indemnification Deductible......................................32
6.5. Limitation Upon Indemnity.......................................33
6.6. Exclusive Remedy................................................33
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. Prohibited Activities...........................................33
7.2. Equitable Relief................................................34
7.3. Reasonable Restraint............................................34
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7.4. Severability; Reformation.......................................34
7.5. Material and Independent Covenant...............................34
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General.........................................................35
8.2. Equitable Relief................................................35
ARTICLE IX
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON PALEX COMMON STOCK
9.1. Compliance with Law.............................................35
9.2. Economic Risk; Sophistication...................................36
9.3. Rule 144 Reporting..............................................36
ARTICLE X
MISCELLANEOUS
10.1. Successors and Assigns.........................................37
10.2. Entire Agreement...............................................37
10.3. Counterparts...................................................37
10.4. Brokers and Agents.............................................37
10.5. Notices........................................................38
10.6. Survival of Representations and Warranties.....................38
10.7. Exercise of Rights and Remedies................................39
10.8. Reformation and Severability...................................39
10.9. Several Liability of Stockholders Under Certain Circumstances..39
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made as of the 12th
day of February, 1998, by and among PalEx, Inc., a Delaware corporation
("PALEX"), Container Services Company SW Acquisition, Inc., a Delaware
corporation that is a subsidiary of PalEx ("NEWCO SW"), Container Services
Company NW Acquisition, Inc., a Delaware corporation that is a subsidiary of
PalEx ("NEWCO NW"), Consolidated Drum Reconditioning Co., Inc., a California
corporation ("CDR"), CDRCo HC, LLC, a California limited liability company, 99%
of the ownership interests of which is owned by CDR ("CDRHC"), CDRCo SW, LLC, a
California limited liability company, 99% of the ownership interests of which is
owned by CDRHC ("CDRSW"), CDRCo NW, LLC, a California limited liability company,
99% of the ownership interests of which is owned by CDRHC ("CDRNW" and, together
with CDR, CDRHC, CDRSW and CDRNW, the "COMPANY"), and Xxxxxx Xxxx and Xxxxxx
Xxxxxxx (collectively, the "STOCKHOLDERS"), who are CDR's only stockholders and
who directly hold a 1% aggregate ownership interest in each of CDRSW, CDRNW and
CDRHC.
WHEREAS, the Company is in the business of reconditioning, manufacturing,
distributing, brokering, managing and/or transporting steel drums and providing
other logistics services with respect thereto;
WHEREAS, the Company desires to sell to Newco the businesses of the
Company as a going concern and in connection therewith substantially all of the
assets of the Company, and Newco desires to purchase such business and assets
and assume certain liabilities of the Company relating thereto, upon the terms
and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AFFILIATE LOANS" means loans made by either Stockholder or his Affiliates
to the Company, as more particularly described in SCHEDULE 3.5.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
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"ASSETS" means all of the Company's assets, properties, businesses,
franchises, goodwill and rights of every kind and character, tangible or
intangible, real or personal, whether owned or leased, other than the Excluded
Assets. Without limiting the generality of the foregoing, the Assets shall
include all assets of the Company as of the Closing, including, without
limitation, the following:
(a) cash and cash equivalents of the Company;
(b) all accounts and notes receivable of the Company, other than the
Stockholder Notes;
(c) all inventory (including, without limitation, spare parts
inventory) and work-in-progress of the Company;
(d) all customer lists, sales records, credit data and other
information relating to customers of the Company;
(e) all right, title and interest of the Company in, to and under
all existing contracts and agreements, written and verbal to which the
Company is a party, including, without limitation, those contracts and
agreements identified in SCHEDULE 3.8;
(f) the vehicles and other transportation equipment of the Company,
including, without limitation, the vehicles and other transportation
equipment of the Company set forth in SCHEDULE 3.7;
(g) all of the furniture, fixtures, equipment, machinery, tools,
appliances, telephone systems, copy machines, fax machines, implements,
spare parts, supplies and all other tangible personal property of every
kind and description owned by the Company or the Company's leasehold
interests therein (the "EQUIPMENT"), including, without limitation, the
Equipment of the Company set forth in SCHEDULE 3.7;
(h) all right, title and interest of the Company in, to and under
all Permits owned or possessed by the Company and relating to the business
or the Company or all or any of the Assets, including, without limitation,
the Permits set forth in SCHEDULE 3.9;
(i) all right, title and interest of the Company in, to and under
all Intangible Property of the Company, the goodwill associated therewith
and the rights and privileges used in the conduct of the businesses of the
Company and the right to recover for infringement thereon, including,
without limitation, the Intangible Property set forth on SCHEDULE 3.21;
(j) the names "Container Services Company," "Consolidated Drum
Reconditioning Co., Inc.," "Consolidated Drum," "Xxxxxxx Drum," "PCD
Containers," "Rose Cooperage Company," "Northwest Cooperage Company" and
all derivations thereof and any trade names or other assumed names under
which the Company operates;
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(k) copies of the Company's books, records, papers and instruments
of whatever nature and wherever located that relate to the business of the
Company or the Assets or which are required or necessary in order for
Newco to conduct the business of the Company from and after the Closing in
the manner in which such business was being conducted before the Closing,
other than books and records relating to the administration and ownership
of the Company; PROVIDED, HOWEVER, that copies of such books and records
shall be included in the Assets;
(l) all insurance proceeds and insurance claims of the Company
relating to its business or all or any part of the Assets, other than with
respect to the Excluded Liabilities, and to the extent transferable, the
benefit of and the right to enforce the covenants and warranties, if any,
that the Company is entitled to enforce with respect to the Assets against
its predecessors in title to the Assets, if any;
(m) all right, title and interest of the Company in computer
equipment and hardware, including, without limitation, all central
processing units, terminals, disk drives, tape drives, electronic memory
units, printers, keyboards, screens, peripherals (and other input/output
devices), modems and other communication controllers, networking
equipment, and any and all parts and appurtenances thereto, together with
all software and intellectual property used by the Company with such
computer equipment and hardware;
(n) all right, title and interest of the Company in, to and under
all rights, privileges, claims, causes of action, and options relating to
or pertaining to their respective businesses or the foregoing Assets; and
(o) all other or additional privileges, rights, interest, properties
and assets of the Company of every kind and description and wherever
located that are used or intended for use in connection with, or that are
necessary to the continued conduct of, their respective businesses as
presently being conducted.
"ASSUMED LIABILITIES" means the liabilities and obligations of the Company
to be assumed by Newco NW or Newco SW, as the case may be, at the Closing in
accordance with SECTION 2.3.
"AUDITED FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"CDR" has the meaning set forth in the first paragraph of this Agreement.
"CDRHC" has the meaning set forth in the first paragraph of this
Agreement.
"CDRNW" has the meaning set forth in the first paragraph of this
Agreement.
"CDRSW" has the meaning set forth in the first paragraph of this
Agreement.
"CLOSING" has the meaning set forth in SECTION 2.7(A).
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"CLOSING DATE" has the meaning set forth in SECTION 2.7(A).
"CODE" has the meaning set forth in SECTION 3.14(A).
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPETITIVE BUSINESS" means any business that competes with the Company,
including, without limitation, any business that (a) reconditions, recycles,
repairs, manufactures, markets, distributes, brokers, manages or transports
steel drums and other logistics services with respect thereto; or (b) competes
with the Company for raw materials (E.G., open top and closed top drums);
PROVIDED, HOWEVER, that such term shall not include the operations of the
Southgate Facility pending the Southgate Closing as such operations were
conducted immediately prior to the Closing and to the extent the output of the
Southgate Facility is sold to Newco or an Affiliate of Newco.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 3.14.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 3.14.
"EMPLOYMENT AGREEMENT" has the meaning set forth in SECTION 5.4.
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, rights of first
refusal, reservations, restrictions or other encumbrances or defects in title.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any Hazardous Substances, in each case as amended and as in effect on the
Closing Date. The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the
Federal Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide
Fungicide and Rodenticide Act, the Federal Occupational Safety and Health Act of
1970, each as amended and as in effect on the Closing Date, and (ii) any common
law or equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability) that
may impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of, effects of or exposure to any
Hazardous Substances.
"ERISA" has the meaning set forth in SECTION 3.14.
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"ERISA AFFILIATE" has the meaning set forth in SECTION 3.14.
"EXCLUDED ASSETS" means the (a) limited liability company ownership
interests of CDR in CDRHC and of CDRHC in CDRNW and CDRSW and (b) the
Stockholder Notes.
"EXCLUDED LIABILITIES" has the meaning set forth in SECTION 2.3.
"EXPIRATION DATE" has the meaning set forth in SECTION 10.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law. The term "HAZARDOUS SUBSTANCES"
includes, without limitation, any substance to which exposure is regulated by
any Governmental Authority or any Environmental Law including, without
limitation, any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance or petroleum or
any derivative or by-product thereof, radon, radioactive material, asbestos or
asbestos containing material, urea formaldehyde foam insulation, lead or
polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.3.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"KNOWLEDGE OF THE COMPANY" or "TO THE COMPANY'S KNOWLEDGE" means the
actual knowledge, after due inquiry, of Xxxxxx Xxxxxxxxxx, Xxxx Xxxxxxxxxx, Xxxx
Xxxxxx, Xxxxxx Xxxx, Xxxxxx Xxxxxxx, Xxxxxx Xxx, Xxxxx Xxxxxxxx, Xxxx Xxxxx,
Xxxxxx Xxxxxxx, Xxxxxxx Xxxxxx and Xxxx Xxxxxx.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOCKUP PERIOD" has the meaning set forth in SECTION 9.4.
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"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including SPECIFICALLY, but without limitation, reasonable attorneys'
fees and expenses of investigation), net of income Tax effects with respect
thereto (including, without limitation, income Tax benefits recognized in
connection therewith and income Taxes upon any indemnification recovery thereof)
and net of any insurance proceeds, and any indemnity, contribution or similar
payment, collected by Newco or any Affiliate of Newco from any third party with
respect thereto.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 3.8.
"MOVING EXPENSES" has the meaning set forth in SECTION 2.8.
"MOVING EXPENSE FUND" has the meaning set forth in SECTION 2.8.
"NEWCO" means Newco NW and Newco SW, collectively.
"NEWCO NW" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO SW" has the meaning set forth in the first paragraph of this
Agreement.
"1997 FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.4.
"1934 ACT"means the Securities Exchange Act of 1934, as amended.
"1933 ACT" means the Securities Act of 1933, as amended.
"OPTION PLAN" has the meaning set forth in SECTION 5.5.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" has the meaning set forth in SECTION 2.2.
"PALEX MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 4.6.
"PALEX SEC FILINGS" has the meaning set forth in SECTION 4.5.
"PERMITS" has the meaning set forth in SECTION 3.9.
"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of December 31, 1997, (b) Encumbrances for property
or ad valorem Taxes not yet due and payable or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the Company's books in accordance with GAAP, and (c)
obligations under operating and capital leases described on SCHEDULE 3.8.
"PLAN" has the meaning set forth in SECTION 3.14.
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"PURCHASE PRICE" has the meaning set forth in SECTION 2.2(A).
"QUALIFIED PLANS" has the meaning set forth in SECTION 3.14.
"REGISTRABLE SECURITIES" has the meaning set forth in SECTION 5.7(B).
"RESTRICTED SHARES" has the meaning set forth in SECTION 9.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SOUTHGATE ASSETS" means the Assets comprised of equipment, machinery,
tools, spare parts, supplies, inventory (including, without limitation, spare
parts inventory) and work-in-progress, all right, title and interest of the
Company in, to and under all Permits, in each case to the extent such Assets,
and any other Assets, are located and used in the operation of the business of
the Company at the Southgate Facility.
"SOUTHGATE ASSUMED LIABILITIES" means all (i) liabilities, obligations or
contingencies of the Company, to the extent the same encumber the Southgate
Assets as of the Closing, or arising in the ordinary course of the operations of
the Southgate Facility between the Closing and the Southgate Closing, (ii)
accounts payable and other current liabilities (as determined in accordance with
GAAP) arising in the ordinary course of business at the Southgate Facility,
(iii) liabilities for compensation or benefits for the Southgate Employees, to
the extent such compensation or benefits are substantially the same as those
provided to such employees as of the Closing, (iv) contractual obligations under
collective bargaining agreements, to the extent such agreements cover the
Southgate Employees, and (v) obligations to customers of the Company or third
parties, to the extent such obligations relate to the operations, products or
services provided at the Southgate Facility; PROVIDED, HOWEVER, that
notwithstanding anything to the contrary contained herein, neither PalEx nor
Newco shall assume or be liable for Excluded Liabilities.
"SOUTHGATE CLOSING" has the meaning set forth in SECTION 2.7(B).
"SOUTHGATE CLOSING DATE" means the earlier of the third business day after
the earlier of the date on which (a) the Company delivers the Southgate Assets
to a new facility leased or purchased by Newco under commercially reasonable
terms negotiated in good faith by the Stockholders and approved by Newco, in its
good faith discretion, (b) Newco or an Affiliate acquires a business in the same
market area as the Southgate Facility operates, which business is able to absorb
the closed top drum reconditioning business conducted by the Company at the
Southgate Facility on a competitive and commercially comparable basis, and (c)
the Company delivers the Southgate Assets to an address in the Los Angeles,
California, metropolitan area specified by Newco in a written notice delivered
to the Company and the Stockholders, which delivery the Company and the
Stockholders shall cause to occur within two weeks of the date of such notice
from Newco.
"SOUTHGATE EMPLOYEES" has the meaning set forth in SECTION 5.9.
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"SOUTHGATE FACILITY" means the Company's facility at 0000 Xxxxxxxx Xxxxxx,
Xxxxxxxxx, Xxxxxxxxxx, and the real property on which such facility is located
and the Company's leasehold interest therein.
"SOUTHGATE PURCHASE PRICE" has the meaning set forth in SECTION 2.2(B).
"STOCKHOLDER NOTES" has the meaning set forth in SECTION 3.6.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"TAXES" has the meaning set forth in SECTION 3.16.
"TERRITORY" has the meaning set forth in SECTION 7.1.
"THIRD PERSON" has the meaning set forth in SECTION 6.3.
"YEAR-END FINANCIAL STATEMENTS has the meaning set forth in SECTION 3.4.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE PLAN OF ACQUISITION
2.1. THE ACQUISITION OF ASSETS.
(a) Upon the terms and subject to the conditions of this Agreement,
at the Closing, the Company agrees to sell, convey, transfer, assign and
deliver to (i) Newco NW, and Newco NW agrees to purchase from the Company,
the Assets of CDRNW (other than Southgate Assets), and (ii) Newco SW, and
Newco SW agrees to purchase from the Company, all the other Assets other
than the Southgate Assets, in each case, free and clear of all
Encumbrances other than Permitted Encumbrances and any Encumbrances
created by Newco or PalEx, as the case may be.
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(b) Upon the terms and subject to the conditions of this Agreement,
at the Southgate Closing, the Company agrees to sell, convey, transfer,
assign and deliver to Newco SW, and Newco SW agrees to purchase from the
Company, all the Southgate Assets, free and clear of all Encumbrances
other than Permitted Encumbrances and any Encumbrances created by Newco or
PalEx, as the case may be.
2.2. PURCHASE PRICE; SOUTHGATE PURCHASE PRICE.
(a) At the Closing, Newco shall pay the Company a purchase price for
the Assets other than the Southgate Assets (the "PURCHASE PRICE") totaling
$25,598,590 in cash and 530,766 shares of PalEx's Common Stock, $.01 par
value per share ("PALEX COMMON STOCK").
(b) At the Southgate Closing, Newco shall pay the Company a purchase
price for the Southgate Assets (the "SOUTHGATE PURCHASE PRICE") equal to
$1,000,000 in cash.
2.3. ASSUMED LIABILITIES; SOUTHGATE ASSUMED LIABILITIES.
(a) As further consideration for the purchase of the Assets other
than the Southgate Assets, at the Closing, Newco NW and Newco SW shall
assume and discharge all (i) liabilities, obligations or contingencies of
CDRNW and the Company (excluding CDRNW and the Southgate Assumed
Liabilities), respectively, (A) that are accrued or reserved against in
the Financial Statements as of December 31, 1997 or reflected in the notes
thereto or (B) that were incurred after the December 31, 1997 and were
incurred in the ordinary course of the business of the Company, consistent
with past practices, and (ii) liabilities and obligations (excluding the
Southgate Assumed Liabilities) that are of a nature not required to be
reflected in the Financial Statements, provided the Financial Statements
are prepared in accordance with GAAP, and that were incurred in the normal
course of business and are described on SCHEDULE 3.5; PROVIDED, HOWEVER,
that notwithstanding anything to the contrary contained herein, neither
PalEx nor Newco shall assume or be liable for: (u) the Southgate Facility
or any lease agreement relating thereto; (v) any noncompliance with
Environmental Laws at the Southgate Facility or in connection with any
activities (whether or not by the Company) at the Southgate Facility and
any generation, use, storage, handling, transportation, treatment or
disposal of Hazardous Substances at or from the Southgate Facility or in
connection with any activities at the Southgate Facility; (w) the
Affiliate Loans; (x) any fees, expenses, finder's fees, brokerage
commissions or advisory fees, expenses or commissions arising in
connection with the consummation of the transactions contemplated by this
Agreement, including, without limitation, any fees or commissions payable
to Bank America Xxxxxxxxx Xxxxxxxx; (y) income Taxes payable by the
Company for the periods prior to and including the Closing Date; or (z)
sales or use Taxes or other similar Taxes or charges, as well as any
interest or penalties thereon, upon or with respect to the sale or
transfer of the Assets by the Company to Newco pursuant to the terms of
this Agreement, but only to the extent of sales and use Taxes based upon
the book value of such Assets attributed thereto by the Company in the
1997 Financial Statements
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(collectively, the "EXCLUDED LIABILITIES"). The Company's outstanding
liabilities, obligations and contingencies as of the Closing Date
(excluding the Southgate Assumed Liabilities), other than normal payables
and accruals incurred in the ordinary course of business and reflected in
the Financial Statements in accordance with GAAP, are as set forth on
SCHEDULE 2.3.
(b) As further consideration for the purchase of the Southgate
Assets, at the Southgate Closing, Newco NW and Newco SW shall assume and
discharge all Southgate Assumed Liabilities.
(c) Neither PalEx nor Newco assumes or agrees to pay, perform or
discharge, or shall be responsible for, Excluded Liabilities, whether
accrued, absolute, contingent or otherwise. The Stockholders and the
Company agree that the Company shall remain solely responsible for, and
the Stockholders and the Company hereby agree to indemnify and to hold
PalEx and Newco harmless from, any and all Loss, liability or obligation,
whether accrued, absolute, contingent or otherwise, arising from or in
respect of the Excluded Liabilities.
2.4. COVENANTS PENDING SOUTHGATE CLOSING; CONDITIONS TO SOUTHGATE CLOSING.
(a) From the Closing Date until the Southgate Closing, the Company
and the Stockholders (i) shall use their commercially reasonable efforts
to maintain the Southgate Assets in their condition as of the Closing,
(ii) shall endeavor in good faith to maintain the business and customer
relationships relating to the operations of the Southgate Assets, (iii)
shall not, without the prior written consent of PalEx, incur any
indebtedness for borrowed money that would be a Southgate Assumed
Liability or enter into any contract or commitment that can not be
terminated on not more than 30 days' notice, and (iv) shall not take or
fail to take any action necessary to cause the representations and
warranties set forth in ARTICLE III to be true and correct as of the
Southgate Closing.
(b) Newco's obligation to purchase the Southgate Assets pursuant to
the terms of this Agreement at the Southgate Closing is conditioned upon
(i) there having been no material loss or destruction of the Southgate
Assets between the Closing Date and the Southgate Closing Date, (ii) there
being no material increase in the Southgate Assumed Liabilities between
the Closing Date and the Southgate Closing Date other than increases in
the ordinary course of business consistent with past practices, and (iii)
the Company conveying good and marketable title to the Southgate Assets to
Newco, free and clear of all Encumbrances other than Permitted
Encumbrances and Encumbrances created by PalEx or Newco, as the case may
be.
2.5. CONVEYANCE DOCUMENTS.
(a) At the Closing, the Company shall execute and deliver to Newco
NW or Newco SW, as appropriate, (i) a completed Xxxx of Sale and
Assignment and Assumption Agreement, in a mutually acceptable form,
covering all of the Assets other than the
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Southgate Assets and the Assumed Liabilities and (ii) a certificate of
title to any Asset other than the Southgate Assets covered by a
certificate of title. At all times hereafter as may be necessary, the
Company shall execute and deliver to Newco NW or Newco SW, as appropriate,
such other instruments of transfer as shall be reasonably necessary or
appropriate to vest in Newco NW or Newco SW good and indefeasible title to
the Assets other than the Southgate Assets, free and clear of all
Encumbrances other than Permitted Encumbrances and to comply with the
purposes and intent of this Agreement.
(b) At the Southgate Closing, the Company shall execute and deliver
to Newco SW, (i) a completed Xxxx of Sale and Assignment and Assumption
Agreement, in a mutually acceptable form, covering all of the Southgate
Assets and the Southgate Assumed Liabilities and (ii) a certificate of
title to any Southgate Asset covered by a certificate of title. At all
times hereafter as may be necessary, the Company shall execute and deliver
to Newco SW such other instruments of transfer as shall be reasonably
necessary or appropriate to vest in Newco SW good and indefeasible title
to the Southgate Assets, free and clear of all Encumbrances other than
Permitted Encumbrances and to comply with the purposes and intent of this
Agreement.
2.6. ALLOCATION OF PURCHASE PRICE AND SOUTHGATE PURCHASE PRICE. SCHEDULE
2.6 sets forth the allocation of the Purchase Price among the Assets, and at the
Southgate Closing Newco and the Company shall endeavor in good faith to agree
upon a mutually acceptable allocation of the Southgate Purchase Price. PalEx,
Newco, the Company and the Stockholders agree that they shall file IRS Forms
8594 consistent with such allocation and shall not take any position or action
inconsistent with such allocation in the filing of any federal income tax
returns.
2.7. CLOSING; SOUTHGATE CLOSING.
(a) The consummation of the purchase of the Assets and the other
transactions contemplated by this Agreement, other than the purchase of
the Southgate Assets (the "CLOSING"), shall take place at the offices of
PalEx, 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 Stockholders may mutually agree, which date shall be
referred to as the "CLOSING DATE."
(b) The consummation of the purchase of the Southgate Assets (the
"SOUTHGATE CLOSING"), shall take place at the offices of PalEx, 0000 Xxxx
Xxx Xxxx., Xxxxx 000, Xxxxxxx, Xxxxx, xx the Southgate Closing Date.
2.8. SOUTHGATE MOVING EXPENSES AND SHUTDOWN HOLDBACK.
(a) The Company and the Stockholders shall bear up to $1,000,000 of
the expenses of moving and shutting down the Southgate Facility. As
security for such obligation of the Company and the Stockholders, at the
Closing, Newco shall withhold $1,000,000 of the cash portion of the
Purchase Price as a moving expense fund (the "MOVING EXPENSE FUND").
Interest shall accrue on the Moving Expense Fund at the same rate as
11
PalEx pays on revolving credit loans under its bank credit facility, which
interest shall be included in the Moving Expense Fund. The Moving Expense
Fund shall be applied for Moving Expenses, and, on presentation to Newco
of receipts or other reasonable verification of Moving Expenses incurred
by the Company and the Stockholders, Newco shall reimburse the Company and
the Stockholders from the Moving Expense Fund for such Moving Expenses.
(b) If the aggregate Moving Expenses paid or incurred by the Company
and the Stockholders exceed $1,000,000, any additional Moving Expenses
above such $1,000,000 figure incurred by the Company and the Stockholders
shall be reimbursed to the Company and the Stockholders by Newco;
PROVIDED, HOWEVER, that Newco shall have the right to approve in advance
all Moving Expenses in excess of $1,000,000.
(c) If the Moving Expenses do not exceed the Moving Expense Fund,
then Newco shall promptly pay the Company and the Stockholders the balance
of the Moving Expense Fund in cash.
(d) For purposes of this Agreement, the term "MOVING EXPENSES" means
all costs and expenses that are reasonable in nature and amount that are
paid or incurred by Newco or PalEx, included in Southgate Assumed
Liabilities or reimbursed to the Company and the Stockholders, to (i)
shutdown the Southgate Facility and move the Southgate Assets to a new
leased facility and install the Southgate Assets at such new facility such
that they are in working order and operational, (ii) shutdown the
Southgate Facility and increase the capacity at a business acquired by
Newco or an Affiliate of Newco in the same market area as the Southgate
Facility operates, which business is able to absorb the closed top drum
reconditioning business conducted by the Company at the Southgate Facility
on a competitive and commercially comparable basis, or (iii) shutdown the
Southgate Facility and move the Southgate Assets to an address in the Los
Angeles, California, metropolitan area specified by Newco in a written
notice delivered to the Company and the Stockholders.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS
Each Stockholder and the Company jointly and severally represents and
warrants to PalEx and Newco as follows:
3.1. DUE ORGANIZATION AND QUALIFICATION.
(a) CDR is a corporation duly organized, validly existing and in
good standing under the laws of the State of California. CDR is duly
authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
businesses in the places and in the manner now conducted. CDR has the
12
requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is currently
being conducted. SCHEDULE 3.1 contains a list of all jurisdictions in
which CDR is authorized or qualified to do business. In addition, SCHEDULE
3.1 sets forth a true, complete and correct list of all counties in
California in which CDR conducts any business. True, complete and correct
copies of the Articles of Incorpora tion and By-laws, each as amended, of
CDR have been provided to PalEx. All the stock records and minute books of
CDR have been made available to PalEx and are correct and complete in all
material respects.
(b) Each of CDRHC, CDRNW and CDRSW is a limited liability company
duly organized, validly existing and in good standing under the laws of
the state of its formation. Each of CDRHC, CDRNW and CDRSW is duly
authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
businesses in the places and in the manner now conducted. Each of CDRHC,
CDRNW and CDRSW has the requisite limited liability company power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is currently being conducted. SCHEDULE 3.1 contains
a list of all jurisdictions in which each of CDRHC, CDRNW and CDRSW is
authorized or qualified to do business. In addition, SCHEDULE 3.1 sets
forth a true, complete and correct list of all counties in California in
which CDRHC, CDRNW or CDRSW conducts any business. True, complete and
correct copies of the operating agreement and any other charter documents,
each as amended, of each of CDRHC, CDRNW and CDRSW have been provided to
PalEx. All the stock records and minute books of the Company have been
made available to PalEx and are correct and complete in all material
respects.
3.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of CDR, CDRHC, CDRNW and CDRSW has the requisite power and
authority to enter into this Agreement and to effect the transactions
contemplated hereby. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. The execution, delivery and
performance of this Agreement have been approved by all requisite action
by each of CDR, CDRHC, CDRNW and CDRSW and by the Stockholders. No
additional proceedings on the part of any of CDR, CDRHC, CDRNW and CDRSW
are necessary to authorize the execution and delivery of this Agreement
and the consummation by each of CDR, CDRHC, CDRNW and CDRSW of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of CDR, CDRHC, CDRNW and CDRSW and each
Stockholder, and, assuming the due authorization, execution and delivery
hereof by PalEx and Newco, constitutes a valid and binding agreement of
each of CDR, CDRHC, CDRNW and CDRSW and each Stockholder, enforceable
against each such party in accordance with its terms.
(b) Except as set forth on SCHEDULE 3.2, the execution and delivery
of this Agreement by the Company and the Stockholders do not, and the
consummation by the Company and the Stockholders of the transactions
contemplated by this Agreement will not, violate or result in a breach of
any provision of, or constitute a default (or an event which,
13
with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the organizational or charter documents
of the Company, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or governmental authority applicable to the Company or any of its
properties or assets or either Stockholder, or (iii) any material
agreement or any note, bond, mortgage, indenture, deed of trust, Permit,
material lease or other material instrument, obligation or agreement of
any kind to which the Company or either Stockholder is now a party or by
which the Company or any of its properties or assets may be bound or
affected.
(c) Except as set forth on SCHEDULE 3.2, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or either
Stockholder or the consummation by the Company or either Stockholder of
the transactions contemplated hereby. Except as set forth on SCHEDULE 3.2,
none of the customer contracts providing for purchases individually in
excess of $50,000, or in the aggregate in excess of $100,000, or other
material agreements to which the Company is a party requires notice to, or
the consent or approval of, any third party for the execution and delivery
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated by this Agreement.
3.3. OWNERSHIP OF THE COMPANY. The Stockholders are the sole shareholders
of CDR; CDRHC is owned 99% by CDR and 0.5% by each Stockholder; and CDRNW and
CDRSW are each owned 99% by CDRHC and 0.5% each by each Stockholder.
3.4. FINANCIAL STATEMENTS.
(a) Attached hereto as SCHEDULE 3.4(C) are complete and correct
copies of (i) the audited balance sheets of the Company as of December 31,
1995 and 1996 and the related audited income statements, statements of
cash flows and statements of changes in shareholders' equity of the
Company for the three-year period ended December 31, 1997 (such balance
sheets, income statements, statements of cash flows and statements of
changes in shareholders' equity are collectively referred to herein as the
"AUDITED FINANCIAL STATEMENTS"), and (ii) the unaudited balance sheets of
the Company as of December 31, 1997, and the related unaudited income
statement, statement of cash flow and statement of changes in
shareholders' equity (collectively, the "1997 FINANCIAL STATEMENTS").
(b) The Audited Financial Statements and the 1997 Financial
Statements have been prepared from the books and records of the Company in
accordance with GAAP. The books of account of each Company have been kept
accurately in all material respects in the ordinary course of business and
the transactions entered therein represent bona fide transactions.
14
(c) SCHEDULE 3.4(C) sets forth the increase (or decrease) in net
property, plant and equipment of the Company as of the Closing Date from
the net property plant and equipment reflected in the 1997 Financial
Statements and the amount of any such increases that were included for
1998 in the financial projections previously provided by the Company to
PalEx.
(d) SCHEDULE 3.4(D) sets forth the increase (or decrease) in working
capital of the Company (excluding cash and indebtedness) as of the Closing
Date from the working capital (excluding cash and indebtedness) reflected
in the 1997 Financial Statements.
3.5. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 3.5 and
SCHEDULE 3.15, the Company did not have at December 31, 1997, nor has it
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except (a) liabilities,
obligations or contingencies (i) that are reflected in the 1997 Financial
Statements or (ii) that were incurred after December 31, 1997 and were incurred
in the ordinary course of business, consistent with past practices, (b)
liabilities and obligations that (i) are of a nature not required to be
reflected in the 1997 Financial Statements prepared in accordance with GAAP,
(ii) were incurred in the normal course of business, and (iii) are described on
SCHEDULE 3.5, and (c) liabilities and obligations that are expressly and
specifically disclosed on the schedules to this Agreement. SCHEDULE 3.5 contains
a reasonable estimate by the Company, given the facts and circumstances
currently known by the Company, of the maximum amount that may be payable with
respect to liabilities which are contingent.
3.6. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.6 sets forth an accurate
list of the accounts and notes receivable of the Company as of December 31, 1997
and as of the close of business on January 21, 1998, including any such amounts
that are not reflected in the 1997 Financial Statements. Receivables from and
advances to the Stockholders and any entities or persons related to or
Affiliated with the Stockholders (collectively, the "STOCKHOLDER NOTES") and to
employees of the Company are separately identified on SCHEDULE 3.6. SCHEDULE 3.6
also sets forth an accurate aging of all accounts and notes receivable of the
Company as of December 31, 1997, showing amounts due in 30-day aging categories.
The trade and other accounts receivable of the Company, including without
limitation those classified as current assets in the 1997 Financial Statements
and those set forth on SCHEDULE 3.6 as of the close of business on January 21,
1998, were acquired in the ordinary course of business, are stated in accordance
with GAAP and, subject to the reserve for doubtful accounts reflected in the
1997 Financial Statements as of December 31, 1997, need not be written-off as
uncollectible. Such accounts and notes, other than the Stockholder Notes, are
collectible in the amount shown in the 1997 Financial Statements, net of
reserves for doubtful accounts reflected in the 1997 Financial Statements.
3.7. ASSETS.
(a) SCHEDULE 3.7 sets forth an accurate list of all real and
personal property included in "property and equipment" in the 1997
Financial Statements and all other tangible (E.G., physical) assets of the
Company with a book value in excess of $10,000 owned by the Company and
included in the Assets (i) as of December 31, 1997. Except as set forth on
SCHEDULE 3.7, the Company does not lease any material equipment. Attached
hereto as
15
SCHEDULE 3.7 is a complete list of leases for all real property leased by
the Company and descriptions of all real property on which buildings,
warehouses, workshops, garages and other structures used by the Company in
the operation of the business of the Company are situated, complete copies
of which leases have been previously provided to PalEx. SCHEDULE 3.7
indicates which of the property, equipment and tangible assets used by the
Company in the operation of its business are currently owned by either
Stockholder or Affiliates of the Company. Except as specifically
identified on SCHEDULE 3.7, all of the tangible assets, vehicles and other
significant machinery and equipment of the Company listed on SCHEDULE 3.7
are in good working order and condition, ordinary wear and tear excepted,
and have been maintained in accordance with standard industry practices.
All fixed assets used by the Company that are material to the operation of
the Company's business are included in the Assets and are either owned by
the Company or leased under an agreement identified on SCHEDULE 3.7. All
leases set forth on SCHEDULE 3.7 are in full force and effect and
constitute valid and binding agreements of the Company, and to the
Company's knowledge, of the third parties thereto, in accordance with
their respective terms. SCHEDULE 3.7 includes complete and correct copies
of any title reports and title insurance policies in possession of the
Company with respect to all real property owned or leased by the Company.
(b) The Company has good and marketable title to the material
tangible and intangible personal property and the real property owned by
the Company and valid leasehold interests in the real and personal
property leased by the Company, including the properties identified on
SCHEDULE 3.7, free and clear of all Encumbrances, other than Permitted
Encumbrances, including without limitation the Encumbrances set forth on
SCHEDULE 3.7.
(c) The Assets constitute all the assets reasonably necessary for
operation of the business of the Company as conducted at December 31,
1997.
3.8. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 3.8 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues for the year ended
period ended December 31, 1997 (the "MATERIAL CUSTOMERS"), and (ii) all
material executory contracts, commitments and similar agreements to which
the Company is currently a party or by which it or any of its properties
is bound, including, but not limited to, (A) all customer contracts in
excess of $10,000, individually, or $25,000 in the aggregate with respect
to any single customer or Affiliate of such customer, including, without
limitation, consignment contracts, (B) contracts with any labor
organizations, (C) leases providing for annual rental payments in excess
of $5,000, individually, or $10,000 in the aggregate with respect to
leases with a single party or Affiliate of such party, (D) loan
agreements, (E) pledge and security agreements, (F) indemnity or guaranty
agreements, (G) bonds, (H) notes, (I) mortgages, (J) joint venture or
partnership agreements, (K) options to purchase real or personal property,
and (L) agreements relating to the purchase or sale by the Company of
assets (other than oral agreements relating to sales of inventory or
services in the ordinary course of business, consistent with past
practices) or securities for more than $5,000, individually, or $10,000
16
in the aggregate. Prior to the date hereof, the Company has made available
to PalEx complete and correct copies of all such agreements.
(b) Except to the extent set forth on SCHEDULE 3.8, (i) no Material
Customer has canceled or substantially reduced or notified the Company or
the Stockholders that it intends to cancel or substantially reduce, or to
the knowledge of the Company, is threatening to cancel or substantially
reduce, its purchases of the Company's products or services, (ii) to the
knowledge of the Company, it is in compliance with all material
commitments and obligations pertaining to it under the agreements
described in SUBSECTION (A), and (iii) the Company is not in default under
any such agreements, no notice of default has been received by the
Company, and to the knowledge of the Company, there is no basis therefor.
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) The Company has a sufficient supply of uncommitted inventory to
fulfill its bartering obligations with third parties.
3.9. PERMITS. SCHEDULE 3.9 contains an accurate list of all licenses,
franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company that are material to
the conduct of its business including, without limitation, permits, licenses and
operating authorizations, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights that are material to the conduct of
the Company's business and are owned or held by the Company (collectively, the
"PERMITS"). The Permits are, to the knowledge of the Company, valid, and the
Company has not received any notice that any governmental authority intends to
cancel, terminate or not renew any such Permit. Except as specifically provided
in SCHEDULE 3.9, the Permits are assignable to Newco at the Closing without the
prior consent of the grantor of such Permits and the transactions contemplated
by this Agreement will not result in a default under or a breach or violation
of, or adversely affect the rights and benefits afforded by, such Permits.
3.10. ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 3.10: (a) the
Company has, for the applicable statute of limitations period, complied with and
is in material compliance with all Environmental Laws, including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Substances; (b) the Company has obtained and complied with all necessary permits
and other approvals necessary to treat, transport, store, dispose of and
otherwise handle Hazardous Substances and has reported, to the extent required
by all Environmental Laws, all past and present sites owned or operated by the
Company where Hazardous Substances have been treated, stored, disposed of or
otherwise handled; (c) there have been no "releases" or threats of "releases"
(as defined in any Environmental Laws) at, from, in or on any property owned or
operated by the Company; (d) there is no on-site or off-site location to which
the Company has transported or disposed of Hazardous Substances or arranged for
the transportation or disposal Hazardous Substances which is the subject
17
of any federal, state, local or foreign enforcement action or any other
investigation that could reasonably be expected to lead to any claim against the
Company, PalEx or Newco for any clean-up cost, remedial work, damage to natural
resources or personal injury, including, but not limited to, any claim under (i)
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, (ii) the Resource Conservation and Recovery Act, (iii) the
Hazardous Materials Transportation Act, or (iv) comparable state and local
statutes and regulations; and (e) the Company has no contingent liability in
connection with any release or disposal of any Hazardous Substance into the
environment.
3.11. LABOR AND EMPLOYEE RELATIONS. Except as set forth on SCHEDULE 3.11,
the Company is not bound by or subject to any arrangement with any labor union,
and no employees of the Company are represented by any labor union or covered by
any collective bargaining agreement nor, to the Company's knowledge, is any
campaign to establish such representation in progress. There is no pending, or
to the Company's knowledge, threatened, labor dispute, grievances or claims, or
work interruptions, involving the Company or any group of its employees nor,
except as set forth on SCHEDULE 3.11, has the Company experienced any labor
interruptions over the past five years.
3.12. INSURANCE. The Company has provided PalEx true and complete copies
of all insurance policies carried by the Company during the last three years and
all insurance loss runs and workmen's compensation claims received for the past
five policy years. None of such policies is a "claims made" policy.
3.13. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 3.13 sets forth an
accurate schedule of all officers, directors and employees of the Company
earning aggregate annual compensation in excess of $70,000, listing the rate of
compensation (and the portions thereof attributable to salary, bonus, benefits
and other compensation, respectively) of each of such persons as of (a) December
31, 1997 and (b) the date hereof. The Company is not a party with any officer,
director, stockholder, member or employee to any employment agreement or similar
arrangement containing "golden parachute"or other similar provisions.
3.14. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company or an ERISA Affiliate has
any current or future obligation or liability or under which any present
or former employee of the Company or an ERISA Affiliate, or such present
or former employee's dependents or beneficiaries, has any current or
future right to benefits (each such plan and arrangement referred to
hereinafter as a "PLAN"), true and complete copies of which Plans,
arrangements and any trusts related thereto, and information regarding
classifications of employees covered thereby as of December 31, 1997 have
been provided to PalEx and/or Newco. Except as set forth on SCHEDULE 3.14,
neither the Company nor any ERISA Affiliate sponsors, maintains or
contributes currently, or at any time during the preceding five years, to
any plan, program, fund or arrangement that constitutes an employee
pension benefit plan.
18
Each Plan may be terminated by the Company, or if applicable, by an ERISA
Affiliate at any time without any liability, cost or expense (other than
for benefits accrued under such Plan as of the date of termination). For
purposes of this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall
have the meaning given that term in Section 3(2) of ERISA, and the term
"ERISA AFFILIATE" means any corporation or trade or business under common
control with the Company as determined under Section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986, as amended (the "CODE").
(b) Each Plan listed on SCHEDULE 3.14 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company and
each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as defined in
Section 4001(a)(3) of ERISA), all reports and other documents required
under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to
result in a material liability to the Company or any ERISA Affiliate, or
required to be distributed to participants or beneficiaries, have been
duly filed or distributed. True and complete copies of all such reports
and other documents with respect to the past five years for each Plan have
been provided to PalEx. No "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 412(a) of the Code) with respect to any Plan has been incurred
(without regard to any waiver granted under Section 412 of the Code), nor
has any funding waiver from the Internal Revenue Service been received or
requested. Each Plan that is intended to be "QUALIFIED" within the meaning
of Section 401(a) of the Code (a "QUALIFIED PLAN") is, and has been during
the period from its adoption to the date hereof, so qualified, both as to
form and operation and all necessary approvals of Governmental
Authorities, including a favorable determination as to the qualification
under the Code of each of such Qualified Plans and each amendment thereto,
have been timely obtained. Except for the obligations accrued in the
ordinary course of business after December 31, 1977, which obligations are
described on SCHEDULE 3.14, all accrued contribution obligations of the
Company with respect to any Plan have either been fulfilled in their
entirety or are fully reflected in the Audited Financial Statements and
the 1997 Financial Statements.
(c) No Plan has incurred, and neither the Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to the
Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Neither the Company nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth
in the Plans, and neither the Company nor any ERISA Affiliate maintains or
has established any Plan that is a "WELFARE BENEFIT PLAN" within the
meaning of Section 3(1) of ERISA that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment, except as may be required by
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code,
and at the expense of the participant or
19
the beneficiary of the participant, or retiree medical liabilities.
Neither the Company nor any ERISA Affiliate maintains, has established or
has ever participated in a multiple employer welfare benefit arrangement
as described in Section 3(40)(A) of ERISA. Neither the Company nor any
ERISA Affiliate has any current or future obligation or liability with
respect to a Plan pursuant to the provisions of a collective bargaining
agreement.
(e) Neither the Company nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in
connection with any Plan. The assets of each Plan that is subject to Title
IV of ERISA are sufficient to provide the benefits under such Plan, the
payment of which the Pension Benefit Guaranty Corporation would guarantee
if such Plan were terminated, and such assets are also sufficient to
provide all other "BENEFITS LIABILITIES" (as defined in ERISA Section
4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's knowledge, threatened claims, lawsuits or actions
(other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Company nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of
any Plan or its related trust or against any fiduciary of a Plan with
respect to the operation of such Plan. There are no investigations or
audits of any Plan by any Governmental Authority currently pending and
there have been no such investigations or audits that have been concluded
that resulted in any liability to the Company or any ERISA Affiliate that
has not been fully discharged. Neither the Company nor any ERISA Affiliate
has participated in any voluntary compliance or closing agreement programs
established with respect to the form or operation of a Plan.
(g) Neither the Company nor any ERISA Affiliate has engaged in any
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan. Except as set forth
on SCHEDULE 3.14, neither the Company nor any ERISA Affiliate is, or ever
has been, a participant in or is obligated to make any payment to a
multiemployer plan. No person or entity that was engaged by the Company or
an ERISA Affiliate as an independent contractor can or will be
characterized or deemed to be an employee of the Company or an ERISA
Affiliate under applicable Laws for any purpose whatsoever, including,
without limitation, for purposes of federal, state and local income
taxation, workers' compensation and unemployment insurance and Plan
eligibility.
3.15. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
3.15, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company, threatened against or affecting the Company, at law or
in equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over the Company. No notice of any claim, action, suit or
proceeding, whether pending or threatened, has been received by the Company and,
to the knowledge of the Company, there is no basis therefor. Except to the
extent set forth on SCHEDULE 3.15, the Company has for the
20
applicable statute of limitations period complied, and is in compliance, with
all Laws applicable to, and Permits and other governmental authorizations of,
the Company, or its assets or operations.
3.16. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. Except as set forth on SCHEDULE
3.16, the Company has timely filed all requisite federal, state, local and other
tax returns for all fiscal periods ended on or before the Closing Date that were
required to be filed before the Closing Date, and has duly paid in full or made
adequate provision in the 1997 Financial Statements for the payment of all Taxes
for all periods ending at or prior to the Closing Date. There are no
examinations in progress or claims against the Company relating to Taxes and no
written notice of any claim for Taxes, whether pend ing or threatened, has been
received by the Company or either Stockholder.
3.17. ABSENCE OF CHANGES. Since December 31, 1997, except as set forth in
SCHEDULE 3.17, the Company has conducted its operations in the ordinary course
and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise) or results of operations of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties or businesses
of the Company;
(c) any change in the ownership of the Company or any change in the
Stockholders' ownership interests of CDR or any grant of any options,
warrants, calls, conversion rights or commitments or the declaration or
payment of any dividend or other distribution;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, either Stockholder or his Affiliates;
(f) any cancellation, or agreement to cancel, any material
indebtedness or other obligation owing to the Company other than with
respect to the Stockholder Notes and settlement of accounts receivable of
the Company in the ordinary course of business, consistent with past
practices;
21
(g) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices;
(h) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(i) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of business of the Company;
(j) any waiver of any material rights or claims of the Company;
(k) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which the Company
is a party or any of its property is subject; or
(l) any material transaction by the Company outside the ordinary
course of business.
3.18. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. The Company
has provided PalEx (a) the name of each financial institution or brokerage firm
in which the Company has accounts or safe deposit boxes; (b) the names in which
the accounts or boxes are held; (c) the type of account and the cash, cash
equivalents and securities held in such account as of the date of this
Agreement; and (d) the name of each person authorized to draw thereon or have
access thereto. No person, corporation, firm or other entity holds a general or
special power of attorney from the Company, including without limitation for
purposes of filing any Tax returns.
3.19. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar law.
3.20. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 3.20, neither Stockholder nor any other Affiliate of the
Company owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of or otherwise receives remuneration from, any
business (excluding for this purpose the Company) which is a competitor, lessor,
lessee, customer or supplier of the Company.
3.21. INTANGIBLE PROPERTY. SCHEDULE 3.21 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, trade names and
copyrights owned or used by the Company. To the Company's knowledge, it owns or
possesses sufficient legal rights to use all of such items without conflict with
or infringement of the rights of others.
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3.22. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 3.22 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
3.23. DISCLOSURE. The Stockholders and the Company have fully provided
PalEx or its representatives with all the information that PalEx has requested
in analyzing whether to consummate the transactions contemplated by this
Agreement. No representation or warranty of the Company or the Stockholders
contained in this Agreement contains any untrue statement of a material fact.
Except with respect to the representations and warranties contained in this
Agreement, including the Schedules hereto, and in the documents delivered by the
Company or the Stockholders at the Closing in connection with the consummation
of the transactions contemplated hereby, the Company and the Stockholders make
no warranty, express or implied, whether of merchantability, suitability or
fitness for a particular purpose, or quality as to any Asset, or as to the
condition or workmanship thereof, or the absence of any defects therein, whether
latent or patent, it being understood that, except as otherwise represented and
warranted herein, the Assets are being conveyed "AS IS" on the Closing Date or
the Southgate Closing Date, as the case may be.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco represent and warrant to the Company as follows:
4.1. ORGANIZATION. Each of PalEx, Newco NW and Newco SW is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and is duly authorized and qualified under all applicable
laws, regulations, and ordinances of public authorities to carry on its business
in the places and in the manner now conducted.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx, Newco NW and Newco SW has the full legal right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance
of this Agreement have been approved by the boards of directors of PalEx,
Newco NW and Newco SW and by PalEx, as the sole stockholder of Newco NW
and Newco SW. No additional corporate proceedings on the part of PalEx,
Newco NW or Newco Sw are necessary to authorize the execution and delivery
of this Agreement and the consummation by PalEx, Newco NW and Newco SW of
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by PalEx, Newco NW and Newco SW, and,
assuming the due authorization, execution and delivery by the Company and
the Stockholders, constitutes a valid and binding agreement of PalEx,
Newco NW and Newco SW, enforceable against PalEx, Newco NW and Newco SW in
accordance with its terms.
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(b) The execution and delivery of this Agreement by PalEx, Newco NW
and Newco SW do not, and the consummation by PalEx, Newco NW and Newco SW
of the transactions contemplated hereby will not, violate or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result
in the creation of any lien, security interest, charge or encumbrance upon
any of the properties or assets of PalEx, Newco NW or Newco SW or any of
its subsidiaries under any of the terms, conditions or provisions of (i)
the Certificate of Incorporation or By-Laws of PalEx, Newco NW or Newco
SW, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to PalEx, Newco NW or Newco SW or any of its
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which PalEx, Newco NW
or Newco SW is now a party or by which PalEx, Newco NW or Newco SW or any
of its properties or assets may be bound or affected.
(c) No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by PalEx, Newco NW or Newco SW or the consummation by PalEx, Newco NW and
Newco SW of the transactions contemplated by this Agreement.
4.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued at
the Closing, when issued in accordance with the terms of this Agreement, will be
duly authorized, validly issued, fully paid and nonassessable. The issuance of
PalEx Common Stock in accordance with the terms of this Agreement will transfer
to the Company valid title to such shares of PalEx Common Stock, free and clear
of all Encumbrances except for any Encumbrances created by the Company.
4.4. LITIGATION. There are no suits, actions, or legal, administrative,
arbitration or other proceedings or, to PalEx's knowledge, governmental
investigations against PalEx pending or, to PalEx's knowledge, threatened, which
(a) if determined adversely to PalEx, could reasonably be expected to result in
any material adverse change in the business, operations, properties, condition
(financial or other), assets, liabilities (contingent or otherwise), results of
operations or prospects of PalEx and its subsidiaries, taken as a whole, or (b)
seek to prevent the consummation of the transactions contemplated hereby.
4.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the SEC all material
forms, statements, reports and documents required to be filed by it under each
of the 1933 Act, the 1934 Act, and the respective rules and regulations
thereunder (collectively, "PALEX SEC FILINGS"), (a) all of which, as amended, if
applicable, complied when filed in all material respects with all applicable
requirements of the appropriate Act and the rules and regulations thereunder,
and (b) none of which, as amended, if applicable, contains any untrue statement
of material fact or omits to state a material fact required
24
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
4.6. ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in the PalEx
SEC Filings and except for the $125 million credit facility of PalEx entered
into in January 1998, PalEx has no liabilities except liabilities (a) to the
extent covered by insurance, indemnification, contribution or comparable
arrangements, with respect to which liabilities, payments related thereto have
actually been recovered or are reasonably expected to be recovered under such
arrangements, (b) that would not reasonably be expected to have, individually or
in the aggregate, a material adverse effect on the business, operations,
properties, condition (financial or other), assets, liabilities (contingent or
otherwise) or results of operations of PalEx and its subsidiaries, taken as a
whole (a "PALEX MATERIAL ADVERSE EFFECT").
4.7. CONDUCT IN THE ORDINARY COURSE OF BUSINESS. Except (a) as reflected
in the PalEx SEC Filings, (b) for the $125 million credit facility of PalEx
entered into in January 1998, and (c) PalEx's activities in connection with
proposed acquisitions of various drum reconditioning businesses, since the date
of PalEx's Quarterly Report on Form 10-Q for the fiscal quarter ended August 31,
1997, the business of PalEx has been conducted in the ordinary course and
consistent with past practice, and PalEx has not suffered a PalEx Material
Adverse Effect.
4.8. DISCLOSURE. PalEx has fully provided the Company and its
representatives with all the information that they have requested in analyzing
whether to consummate the transactions contemplated hereby, including, without
limitation, its Prospectus dated September 8, 1997 and its Quarterly Report on
Form 10-Q for the fiscal quarter ended August 31, 1997. None of the information
so provided nor any representation or warranty of PalEx, Newco NW or Newco SW
contained in this Agreement contains any untrue statement of a material fact. No
warranty or representation shall be deemed to have been made by PalEx except for
the warranties and representations expressly set forth in this Agreement,
including the Schedules hereto, and in the documents delivered by PalEx at the
Closing in connection with the consummation of the transactions contemplated
hereby.
ARTICLE V
CERTAIN COVENANTS
5.1. RELEASE FROM GUARANTEES.
(a) After the Closing, each of PalEx and Newco shall use its
commercially reasonable efforts, which shall, if necessary, include
offering replacement guarantees of Newco or PalEx, to have the
Stockholders released from the personal guarantees of Assumed Liabilities,
each of which guarantees is identified in SCHEDULE 5.1. PalEx and Newco
hereby agree to indemnify, defend and protect each Stockholder and hold
him harmless for any Losses incurred by such Stockholder arising from such
personal guarantees after the Closing.
25
(b) After the Southgate Closing, each of PalEx and Newco shall use
its commercially reasonable efforts, which shall, if necessary, include
offering replacement guarantees of Newco or PalEx, to have the
Stockholders released from the personal guarantees of Southgate Assumed
Liabilities, each of which guarantees is identified in SCHEDULE 5.1. PalEx
and Newco hereby agree to indemnify, defend and protect each Stockholder
and hold him harmless for any Losses incurred by such Stockholder arising
from such personal guarantees after the Southgate Closing.
5.2. FUTURE COOPERATION; TAX MATTERS. The Stockholders, the Company, Newco
and PalEx shall each deliver or cause to be delivered to the other following the
Closing such additional instruments as the other may reasonably request for the
purpose of fully carrying out this Agreement. The Company and the Stockholders
will cooperate and use its or his commercially reasonable efforts to have the
present officers, directors and employees of the Company cooperate with PalEx
and/or Newco at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing. Each of PalEx and Newco will cooperate with the
Company and the Stockholders in the preparation of all tax returns covering the
period from the beginning of the Company's current tax year through the Closing.
In addition, Newco will provide the Company and the Stockholders with access to
such of its books and records as may be reasonably requested by the Company and
the Stockholders in connection with Tax matters relating to the Company and
periods ending on or prior to the Closing Date.
5.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto and the consummation of the transactions contemplated
hereby. Newco will pay the fees and expenses of Xxxxxx Xxxxxxxx LLP incurred in
connection with the audit of the 1997 Financial Statements and the consummation
of the transactions contemplated by this Agreement. The Stockholders and the
Company will pay their respective fees, expenses and disbursements and those of
their respective agents, representatives, financial advisors, accountants and
counsel incurred in connection with the execution, delivery and performance of
this Agreement and any amendments hereto and the consummation of the
transactions contemplated hereby.
5.4. EMPLOYMENT AGREEMENT. At the Closing, Newco and each Stockholder
shall enter into a mutually acceptable Employment and Non-Competition Agreement
(the "EMPLOYMENT AGREEMENT") to be effective as of the Closing Date.
5.5. STOCK OPTIONS. PalEx shall recommend to the Compensation Committee of
its Board of Directors that nonqualified options to purchase an aggregate of
150,000 shares of PalEx Common Stock be granted as soon as practicable after the
Closing under PalEx's 1996 Stock Option Plan, as amended ("OPTION PLAN") to
individuals who are employees of the Company as of the date of this Agreement
(other than the Stockholders), as mutually agreed upon by the Stockholders and
PalEx.
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5.6. LEGAL OPINION. At the Closing, the Company and the Stockholders shall
cause their legal counsel, Xxxxxx Xxxx, Esq., to deliver to PalEx a legal
opinion in form and substance acceptable to PalEx.
5.7. REGISTRATION RIGHTS.
(a) If at any time or times after the first anniversary of the
Closing Date, but prior to the third anniversary of the Closing Date,
PalEx shall determine to register any PalEx Common Stock (for itself or
for any holder of securities of PalEx) under the 1933 Act or any successor
legislation (other than a registration relating to stock option plans,
employee benefit plans or a transaction pursuant to Rule 145 under the
1933 Act), and in connection therewith PalEx may lawfully register the
Restricted Shares held by the Company, PalEx will promptly give written
notice thereof to the Company and will include in such registration and
effect the registration under the 1933 Act of all Registrable Securities
(as hereinafter defined) that the Company may request in writing by notice
delivered to PalEx within 20 days after receipt by the Company of the
notice given by PalEx; PROVIDED, HOWEVER, that in connection with any such
offering by PalEx of any of its securities, no such registration of
Registrable Securities shall be required if the managing underwriter, if
any, for PalEx advises it in writing that including all or part of the
Registrable Shares in such offering will materially adversely affect the
proposed offering and jeopardize PalEx's ability to sell its own
securities in such offering. If such managing underwriter advises PalEx
that, in its opinion, part of the Registrable Securities may be included
in such offering without materially adversely affecting the proposed
offering, then PalEx shall be obligated to include such lesser number of
Registrable Securities in such offering, which shares shall be taken from
those owned and held by a group consisting of the Company and the other
holders of PalEx Common Stock having registration rights that are PARI
PASSU with those of the Company, and such limitation shall be imposed upon
the Company and such other holders pro rata on the basis of the total
number of shares of Restricted Shares held by the Company and the shares
of PalEx Common Stock held by such other holders or obtainable by them
upon the exercise of rights with respect to other securities owned by
them. All expenses of such registration and offering shall be borne by
PalEx, except that the Company shall bear underwriting commissions and
discounts attributable to its Registrable Securities being registered and
the fees and expenses of separate counsel, if any, for the Company. The
Company shall be entitled to an unlimited number of registrations under
this SECTION 5.7 during the term set forth in the first sentence of this
SECTION 5.7(A).
(b) For the purposes of this SECTION 5.7, the term "REGISTRABLE
SECURITIES" shall mean (i) the Restricted Shares, and (ii) any PalEx
Common Stock issued or issuable with respect to the Restricted Shares by
way of a stock dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization.
(c) Whenever, under the preceding paragraphs of this SECTION 5.7,
PalEx is required to hereunder to register Registrable Securities, PalEx
shall as expeditiously as possible:
27
(i) prepare and file with the SEC a registration statement
with respect to the Registrable Securities that complies
with all requirements of the 1933 Act;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectuses used in connection therewith as may be
necessary to keep such registration statement effective
and to comply with the provisions of the 1933 Act with
respect to the sale of securities covered by such
registration statement for the period necessary to
complete the proposed public offering (but in no event
for a period in excess of 90 days);
(iii) furnish to the Company such copies of each preliminary
and final prospectus and such other documents as the
Company may reasonably request to facilitate the
disposition of the Company's Registrable Securities;
(iv) enter into an underwriting agreement with customary
terms and provisions as reasonably agreed by PalEx and
the proposed underwriter, if any, of the offering;
(v) use its commercially reasonable best efforts to register
and qualify the Registrable Securities covered by such
registration statement under applicable state securities
or "blue-sky" laws, PROVIDED that PalEx shall not be
required in connection therewith or as a condition
thereto to qualify to do business as a foreign
corporation in any such jurisdiction wherein it is not
so qualified;
(vi) furnish to the Company, if it is a selling stockholder,
a signed counterpart, addressed to the Company, of
(A) an opinion of counsel to PalEx, and
(B) comfort letter(s) signed by the independent public
accountants who have certified PalEx's financial
statements included in the registration statement,
in each case, covering substantially the same
matters with respect to the registration statement
(and the prospectus included therein) and (in the
case of the accountant's letter) with respect to
events subsequent to the date of the financial
statements, as are customarily covered in opinions
of issuer's counsel and in accountant's letters
delivered to the underwriters in underwritten
public offerings of securities.
28
(d) PalEx shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration
under this SECTION 5.7.
(e) In connection with any underwritten offering by PalEx in which
the Company participates, the Company shall, if requested by the managing
underwriter or underwriters thereof, agree not to sell any of its
Registrable Securities or any other securities of PalEx owned by the
Company in any transaction other than pursuant to such underwritten
offering for a period beginning 60 days prior to the date PalEx and the
underwriter reasonably expect the registration statement to become
effective, and for such period after the effective date of the
registration statement as is agreed upon by the underwriters and PalEx
(not to exceed 180 days), PROVIDED that the PalEx officers and directors
and each holder of 5% or more of PalEx's issued and outstanding PalEx
Common Stock also agree to such limitations.
(f) PalEx may delay any underwritten offering pursuant to this
SECTION 5.7 when a condition or pending transaction exists the disclosure
of which would reasonably be expected to have a material adverse effect on
the proposed offering.
(g) PalEx will indemnify the Company, the Stockholders, each of the
Company's officers, directors and partners, and each other person, if any,
who controls the Company within the meaning of the Section 15 of the 1933
Act against any losses, claims, damages, expenses, or liabilities to which
such persons may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or action in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement or any preliminary prospectus or final prospectus or amendment
or supplement thereto on the effective date thereof, or arise out of or
are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse such persons for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED, HOWEVER, that PalEx will not be liable in any such case
to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, or any
preliminary prospectus or final prospectus or amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to PalEx through an instrument duly executed by such person
specifically for use in the preparation thereof.
It shall be a condition precedent to the obligation of PalEx to
include in any registration statement any Registrable Securities then held
by the Company that PalEx shall have received an undertaking, satisfactory
to it and the managing underwriter or underwriters, from the Company to
indemnify and hold harmless (in the same manner and to the same extent as
set forth in the preceding paragraph) PalEx, each director of PalEx, each
officer of PalEx who shall sign such registration statement and the
managing underwriter or underwriters and any person who controls such
underwriters or PalEx within the meaning of the 1933 Act, with respect to
any statement or omission from such registration statement, any
preliminary prospectus or final prospectus contained therein, or
29
any amendment or supplement thereto, if such statement or omission was
made in reliance upon and in conformity with written information furnished
to PalEx through an instrument duly executed by the Company specifically
for use in the preparation of such registration statement, preliminary
prospectus or final prospectus or such amendment or supplement thereto.
Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs in this SECTION 5.7, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party, give written
notice to the latter of the commencement of such action. In any case such
action is brought against an indemnified party, the indemnifying party
will be entitled to participate in and to assumed the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
incurred by the latter in connection with the defense thereof.
5.8. SALES TAXES. The Company and the Stockholders shall bear and pay all
sales or use Taxes or other similar Taxes or charges, as well as any interest or
penalties thereof, upon or with respect to the sale or transfer of the Assets by
the Company to Newco pursuant to this Agreement, but only to the extent of any
sales, use or similar Taxes based upon the book value of such Assets attributed
thereto by the Company in the 1997 Financial Statements.
5.9. EMPLOYEES.
(a) Newco agrees to offer employment to the employees of the Company
on terms and with benefits that are no less favorable, when considered in
the aggregate, than those currently provided to employees of PalEx's
subsidiaries with similar levels of responsibility and experience;
PROVIDED, HOWEVER, that Newco shall not extend offers of employment to the
employees identified on SCHEDULE 5.9 until the Southgate Closing (the
"SOUTHGATE EMPLOYEES").
(b) To the extent time of service is relevant for purposes of
eligibility or vesting under any employee benefit plan, program or
arrangement established or maintained by PalEx for the benefit of
Employees of the Company who accept employment with Newco following the
Closing, such plan, program or arrangement shall credit such employees for
service on or prior to the Closing Date with the Company; PROVIDED,
HOWEVER, that such credit shall not apply with respect to the Option Plan
or as to employees covered by similar benefits under any collective
bargaining agreement. SCHEDULE 5.9 identifies each employee of the Company
who is not covered by similar benefits under any collective bargaining
agreement and the years of service credited by the Company to each such
employee.
(c) Notwithstanding anything to the contrary contained in this
Agreement, no provision of this Agreement shall be deemed or construed to
(i) affect (A) the status of the employees of the Company who are hired by
Newco as "employees at will" of Newco or (B)
30
any right Newco or PalEx may have, after the Closing, to terminate or
modify the terms of the employment of any employee of the Company who is
hired by Newco, or (ii) make any employee of the Company a third party
beneficiary of this Agreement.
ARTICLE VI
INDEMNIFICATION
The Company, the Stockholders, PalEx and Newco each make the following
covenants:
6.1. GENERAL INDEMNIFICATION BY THE COMPANY AND THE STOCKHOLDERS. Subject
to SECTION 6.4, the Company and each Stockholder covenants and agrees that it or
he will, jointly and severally, indemnify, defend, protect and hold harmless
PalEx and Newco, and their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates from and against all Losses
incurred by any of such indemnified persons as a result of or arising from (a)
any breach of the representations and warranties of the Company and the
Stockholders set forth herein or in the Schedules or certificates delivered in
connection herewith, (b) Excluded Liabilities, (c) any breach or nonfulfillment
of any covenant or agreement on the part of either Stockholder or the Company
under this Agreement, (d) the Company's failure to obtain consents to the
assignments of the agreements listed on SCHEDULE 3.7 under the heading "Landlord
Consents" (other than the lease for the Southgate Facility), (e) any claim made
by any employee of the Company for any severance or termination benefits to
which such employee, as the case may be, is entitled under the Company's
employment policies with respect to any termination occurring prior to the
Closing or the Southgate Closing, as the case may be, (f) any claim of
employment discrimination by the Company including, but not limited to,
discrimination in the Company's hiring or termination of any employees and
sexual harassment, and (g) any claim of wrongful discharge of any employee of
the Company prior to the Closing (including constructive discharge), in the case
of CLAUSES (A) and (C) through (G) provided that notice of such claim is given
in accordance with SECTION 10.5 hereof on or before the Expiration Date.
6.2. INDEMNIFICATION BY PALEX. Subject to SECTION 6.4, PalEx covenants and
agrees that it will indemnify, defend, protect and hold harmless the Company at
all times from and after the date of this Agreement from and against all Losses
incurred by the Company as a result of or arising from (a) any breach of the
representations and warranties set forth herein or in the Schedules or
certificates attached hereto, (b) any breach or nonfulfillment of any covenant
or agreement on the part of PalEx under this Agreement, (c) any claim made by
any employee of the Company who accepts employment with Newco or any of its
Affiliates for any severance or termination benefits to which employees of Newco
or its Affiliate, as the case may be, are entitled under its employment
policies, (d) any suit or claim of violation against the Company under the
Workers Adjustment and Retraining Notification Act for any actions taken by
Newco after the Closing or the Southgate Closing, as appropriate, with respect
to any facility, site of employment or operating unit of Newco, provided such
terminations are approved by officers of Newco who are not, immediately prior to
the Closing, Affiliates of the Company, (e) any claim of employment
discrimination by Newco including, but not limited to, discrimination in Newco's
hiring or termination of any employees and sexual harassment,
31
(f) any claim of wrongful discharge of any employee of the Company who is hired
by Newco (including constructive discharge), (g) the Assumed Liabilities after
the Closing Date and the Southgate Assumed Liabilities after the Southgate
Closing Date, in each case provided that notice of such claim is given in
accordance with SECTION 10.5 hereof on or before the Expiration Date.
6.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), or the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 6.1 or 6.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof, and the Indemnifying
Party shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement imposes any liability or obligation on the
Indemnified Party or does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter in its discretion, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other reasonable liabilities or expenses incurred by the Indemnified Party in
connection therewith.
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6.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholders and the Company,
on the one hand, nor PalEx and Newco, on the other hand, be shall be entitled to
indemnification from the other under the provisions of SECTION 6.1(A) or SECTION
6.2(A), as the case may be, until such time as, and only to the extent that, the
claims subject to indemnification by such other party exceed, in the aggregate,
$500,000; PROVIDED, HOWEVER, that this SECTION 6.4 shall not apply to breaches
of the representations set forth in the last sentence of SECTION 2.3(A) or in
SECTION 3.4(C) or (D) or SECTION 10.4.
6.5. LIMITATION UPON INDEMNITY. Notwithstanding anything to the contrary
contained herein, the aggregate indemnification obligation of the Company and
the Stockholders under SECTION 6.1(A) shall be limited to $20,000,000.
Notwithstanding anything to the contrary contained herein, this SECTION 6.5
shall not apply to (a) breaches of the representations set forth in the last
sentence of SECTION 2.3(A) or in SECTION 3.4(C) or (D) or SECTION 10.4, or (b)
fraudulent misrepresentations.
6.6. EXCLUSIVE REMEDY. Except for claims based on fraud, each party hereto
acknowledges and agrees that, from and after the Closing, its or his sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this ARTICLE VI.
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. PROHIBITED ACTIVITIES.
(a) Neither Stockholder will, for the longer of (y) five years
following the Closing Date and (z) one year following such Stockholder's
voluntary termination of his employment with Newco or its Affiliates or
the termination of such individual's employment with Newco "with cause,"
as determined in accordance with such individual's Employment Agreement,
directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation or business of
whatever nature:
(i) engage, as an officer, director, employee, shareholder,
owner, partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in any Competitive Business (A) in the
counties in California in which the Company or any
subsidiary conducts business, all of which counties are
set forth on SCHEDULE 3.1, or (B) within 250 miles of
where the Company or any of its subsidiaries conducts
business outside of California, including any state or
territory outside of California that is serviced by the
Company or any of such subsidiaries (the counties and
other areas included within clause (A) and (B) being
herein referred to as the "TERRITORY");
33
(ii) call upon any person who is an employee or consultant of
PalEx, Newco or any of their respective subsidiaries for
the purpose or with the intent of enticing such employee
or consultant away from or out of the employ or contract
with PalEx, Newco or any of their respective
subsidiaries; or
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the Company, PalEx or Newco or any of the
subsidiaries of such parties within the Territory for
the purpose of soliciting or selling services or
products in a Competitive Business within the Territory.
(b) Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit either Stockholder from acquiring, as a passive
investor with no involvement in the operations of the business, not more
than one percent of the capital stock of a Competitive Business whose
stock is publicly traded on a national securities exchange or the Nasdaq
National Market or over-the-counter.
7.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to PalEx and Newco as a result of a breach of the foregoing covenant,
because a breach of such covenant would diminish the value of the Assets and
business of the Company being sold pursuant to this Agreement, and because of
the immediate and irreparable damage that could be caused to PalEx and Newco for
which it would have no other adequate remedy, each Stockholder agrees that the
foregoing covenant may be enforced against him by injunctions, restraining
orders and other equitable actions.
7.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE VII is necessary in terms of time, activity
and territory to protect PalEx's and Newco's interest in the Assets and business
being acquired pursuant to the terms of this Agreement and impose a reasonable
restraint on each Stockholder in light of the activities and businesses of the
Company on the date of the execution of this Agreement and the current plans of
the Company.
7.4. SEVERABILITY; REFORMATION. The covenants in this ARTICLE VII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE VII are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed.
7.5. MATERIAL AND INDEPENDENT COVENANT. Each Stockholder acknowledges his
agreements and the covenants set forth in this ARTICLE VII are material
conditions to PalEx's and Newco's agreements to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and that PalEx
and Newco would not have entered into this Agreement without
34
such covenants. All of the covenants in this ARTICLE VII shall be construed as
an agreement independent of any other provision in this Agreement.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Each Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company being conveyed
to Newco pursuant to this Agreement and/or PalEx, such as lists of customers,
operational policies, and pricing and cost policies that are, and following the
Closing will be, valuable, special and unique assets of Newco and/or PalEx. Each
Stockholder agrees that he will not use or disclose such confidential
information to any person, firm, corporation, association or other entity for
any purpose whatsoever, except as is required in the course of performing his
duties to Newco and/or PalEx, unless (a) such information becomes known to the
public generally through no fault of such Stockholder, or (b) disclosure is
required by law or the order of any Governmental Authority, PROVIDED, that prior
to disclosing any information pursuant to this clause (b) such Stockholder
shall, if possible, give prior written notice thereof to Newco and PalEx and
provide Newco and PalEx with the opportunity to contest such disclosure. In the
event of a breach or threatened breach by a Stockholder of the provisions of
this Section, PalEx and Newco shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx or Newco
from pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the Assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which Newco and/or PalEx would have
no other adequate remedy, each Stockholder agrees that the foregoing covenants
may be enforced against him by injunctions, restraining orders and other
equitable actions.
ARTICLE IX
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON PALEX COMMON STOCK
9.1. COMPLIANCE WITH LAW. The Company and the Stockholders acknowledge the
shares of PalEx Common Stock issued at the Closing in accordance with the terms
of this Agreement (the "RESTRICTED SHARES") will not be registered under the
1933 Act and therefore may not be resold without compliance with the 1933 Act.
The Restricted Shares are being or will be acquired by the Company solely for
its own account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of them in connection with a
distribution. The Company
35
and the Stockholders covenant, warrant and represent that none of the Restricted
Shares will be, directly or indirectly, offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all of the applicable provisions of the Act and the rules and regulations
of the SEC. Certificates representing the Restricted Shares shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
9.2. ECONOMIC RISK; SOPHISTICATION. The Company and each Stockholder are
able to bear the economic risk of an investment in the Restricted Shares and can
afford to sustain a total loss of such investment. The Company and each
Stockholder have such knowledge and experience in financial and business matters
that it or he is capable of evaluating the merits and risks of the proposed
investment and therefore has the capacity to protect its or his own interests in
connection with the Company's acquisition of the Restricted Shares. The Company
and each Stockholder represent to PalEx and Newco that it and he are "accredited
investors," as that term is defined in Regulation D under the 1933 Act. The
Company and each Stockholder or its or his representatives have had an adequate
opportunity to ask questions and receive answers from the officers of PalEx and
Newco concerning, among other matters, PalEx, its management, its plans for the
operation of its business and potential additional acquisitions.
9.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as the
Company holds any Restricted Shares, to use its commercially reasonable efforts
to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to such Company upon written request a written statement
by PalEx as to its compliance with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, a copy of the most recent annual or
quarterly report of PalEx, and such other reports and documents so filed
as such Company may reasonably request in availing itself of any rule or
regulation of the SEC allowing such Company to sell any such shares
without registration.
36
9.4. RESTRICTION ON SALE OR OTHER TRANSFER OF RESTRICTED SHARES. The
Company and each Stockholder covenants, warrants and represents that none of the
Restricted Shares will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of, directly or indirectly, including without
limitation through the transfer of equity interests in the Company, during the
one-year period commencing on the Closing Date (the "LOCKUP PERIOD") and,
thereafter, only after full compliance with all of the applicable provisions of
the 1933 Act and the rules and regulations of the SEC; and, during the Lockup
Period, neither the Company nor the Stockholders shall engage in put, call,
short-sale, straddle or similar transactions intended to reduce the Company's
risk of owning the Restricted Shares; PROVIDED, HOWEVER, that the Company may
distribute Restricted Shares to the Stockholders, each of whom hereby agrees to
be bound by the transfer restrictions set forth in this SECTION 9.4.
Certificates representing the Restricted Shares shall bear the following legend
in addition to the legend under SECTION 9.1:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
CONTRACTUAL RESTRICTION ON TRANSFER THAT EXPIRES ON FEBRUARY 12,
1999 AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED,
TRANSFERRED OR OTHERWISE DISPOSED OF DURING THE PERIOD OF SUCH
CONTRACTUAL RESTRICTION WITHOUT THE PRIOR WRITTEN CONSENT OF PALEX,
INC.
ARTICLE X
MISCELLANEOUS
10.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco and the Company, and the heirs and legal representatives of the
Stockholders.
10.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement, including, without limitation,
that certain letter of intent dated December 29, 1997, by and among PalEx, the
Company and the Stockholders, as amended or supplemented. This Agreement may be
modified or amended only by a written instrument duly executed by the
Stockholders and the Company, Newco and PalEx.
10.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
10.4. BROKERS AND AGENTS. Except for the Stockholders' engagement of Bank
America Xxxxxxxxx Xxxxxxxx as their investment banker in connection with the
transactions contemplated by this Agreement, each party represents and warrants
that it employed no broker or agent in connection
37
with the transactions contemplated by this Agreement. The Stockholders jointly
and severally agree to indemnify Newco and PalEx against all Losses arising out
of claims for fees or commissions of Bank America Xxxxxxxxx Xxxxxxxx or its
agents or representatives in connection with or arising out of the transactions
contemplated by this Agreement. Each party agrees to indemnify each other party
against all loss, cost, damages or expense arising out of claims for fees or
commissions of brokers employed or alleged to have been employed by such
indemnifying party.
10.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx or Newco, addressed to them at:
PalEx, Inc.
0000 Xxxx Xxx Xxxx.
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxx Xxxxx
(b) If to either Stockholder, addressed to such individual at the
following address:
c/o Container Services Company
X.X. Xxx 0000
Xxxxxxxxxx, Xxxxxxxxxx 00000
With a copy (which shall not constitute notice) to:
Xxxxxx Xxxx, Esq.
0 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxx Xxx, Xxxxxxxxxx 00000
or such other address as any party hereto shall specify pursuant to this SECTION
10.5 from time to time.
10.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE III and ARTICLE IV shall survive the Closing for
a period of one year from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 3.10 hereof shall
survive for a period of three years from the Closing Date, which shall be deemed
to be the Expiration Date for claims based on a breach of SECTION 3.10. The
respective parties shall remain liable after the Expiration Date for breaches of
the representations and warranties set forth in ARTICLE III and ARTICLE IV,
provided such breaches are asserted in good faith by notice in writing to the
alleged breaching party prior to the Expiration Date. Notwithstanding
38
anything to the contrary contained in this Agreement, any party to this
Agreement may assert claims based on fraud during the applicable statutory
limitations period.
10.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
10.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
10.9. SEVERAL LIABILITY OF STOCKHOLDERS UNDER CERTAIN CIRCUMSTANCES.
Notwithstanding anything to the contrary contained in this Agreement, upon the
death or legal incapacity of either Stockholder, the liabilities and obligations
of the Stockholders under ARTICLE III and ARTICLE VI shall be several and not
joint and several.
[THE REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_______________________
Name: Xxxxxx Xxxxx
Title:Vice President
CONTAINER SERVICES COMPANY SW ACQUISITION, INC.
By:_______________________
Name: Xxxxxx Xxxxx
Title:President
CONTAINER SERVICES COMPANY NW ACQUISITION, INC.
By:_______________________
Name: Xxxxxx Xxxxx
Title:President
CONSOLIDATED DRUM RECONDITIONING CO., INC.
By:_______________________
Name: Xxxxxx Xxxx
Title:Chief Executive Officer
40
CDRCO HC, LLC
By:_______________________
Name:
Title:
CDRCO SW, LLC
By:_______________________
Name:
Title:
CDRCO NW, LLC
By:_______________________
Name:
Title:
__________________________
Xxxxxx Xxxx, Individually
__________________________
Xxxxxx Xxxxxxx, Individually
41
