EXHIBIT 2.4
ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PALEX, INC.,
WESTERN CONTAINER ACQUISITION, INC.,
ENVIRONMENTAL RECYCLERS OF COLORADO, INC.,
XXXXXXX BANK,
XXXXX XXXXX,
XXXXX XXXXXXXX,
XXXXXX X. XXXXX,
XXXXXXX XXXXXX,
XXXX XXXXXX,
XXXXXX XXXXXXXX,
XXXXXX XXXXXXXX,
XXXXXXX X. XXXXXXX,
XXXX XXXXXXXXXX,
AND
XXXX X. XXXXX
DATED AS OF FEBRUARY 23, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................2
1.2. Interpretation.....................................................5
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. The Merger.........................................................6
2.2. Effective Time of the Merger.......................................6
2.3. Articles of Incorporation, By-laws and Board of Directors
of Surviving Corporation...........................................6
ARTICLE III
CONVERSION OF SHARES
3.1. Conversion of Company Shares.......................................7
3.2. Conversion of Newco Shares.........................................7
3.3. Exchange of Certificates...........................................7
3.4. Closing............................................................7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
4.1. Due Organization and Qualification.................................8
4.2. Authorization; Non-Contravention; Approvals........................8
4.3. Capitalization.....................................................9
4.4. Pooling-of-Interests Accounting....................................9
4.5. Subsidiaries......................................................10
4.6. Financial Statements..............................................10
4.7. Liabilities and Obligations.......................................10
4.8. Accounts and Notes Receivable.....................................10
4.9. Assets............................................................11
4.10. Material Customers, Contracts and Bartering Commitments..........12
4.11. Permits..........................................................12
4.12. Environmental Matters............................................13
4.13. Labor and Employee Relations.....................................13
4.14. Insurance........................................................14
4.15. Compensation; Employment Agreements..............................14
4.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...14
4.17. Employee Benefit Plans...........................................14
4.18. Litigation and Compliance with Law...............................16
4.19. Taxes............................................................16
4.20. Absence of Changes...............................................17
4.21. Accounts with Banks and Brokerages; Powers of Attorney...........18
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4.22. Absence of Certain Business Practices............................18
4.23. Competing Lines of Business; Related-Party Transactions..........18
4.24. Intangible Property..............................................19
4.25. Disclosure.......................................................19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
5.1. Organization......................................................19
5.2. Authorization; Non-Contravention; Approvals.......................19
5.3. PalEx Common Stock................................................20
5.4. Tax Reorganization Representations................................20
5.6. Legal Compliance..................................................21
5.7. Litigation and Compliance with Law................................21
5.8. Disclosure........................................................21
ARTICLE VI
CERTAIN COVENANTS
6.1. Release From Guarantees...........................................22
6.2. Future Cooperation; Tax Matters...................................22
6.3. Expenses..........................................................22
6.4. Registration Rights Agreement.....................................23
6.5. Repayment of Related Party Indebtedness...........................23
ARTICLE VII
INDEMNIFICATION
7.1. General Indemnification by the Stockholders.......................23
7.2. Indemnification by PalEx..........................................23
7.3. Third Person Claims...............................................23
7.4. Indemnification Deductible........................................24
7.5. Indemnification Limitation........................................24
7.6. Indemnification for Negligence of Indemnified Party...............25
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................25
8.2. Equitable Relief..................................................25
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. Execution of Documents Necessary for Pooling Treatment............26
9.2. Restrictions on Resale............................................26
9.3. Tax-Free Reorganization...........................................26
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................26
10.2. Economic Risk; Sophistication....................................27
10.3. Rule 144 Reporting...............................................27
ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................28
11.2. Entire Agreement.................................................28
11.3. Counterparts.....................................................28
11.4. Brokers and Agents...............................................28
11.5. Notices..........................................................28
11.6. Survival of Representations and Warranties.......................29
11.7. Exercise of Rights and Remedies..................................29
11.8. Reformation and Severability.....................................29
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ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT")
is made as of the 23rd day of February, 1998, by and among PalEx, Inc., a
Delaware corporation ("PALEX"), Western Container Acquisition, Inc., a Delaware
corporation that is a subsidiary of PalEx ("NEWCO"), Environmental Recyclers of
Colorado Inc., a Colorado corporation (the "COMPANY"), and Xxxxxxx Bank, Xxxxx
Xxxxx, Xxxxx Xxxxxxxx, Xxxxxx X. Xxxxx, Xxxxxxx Xxxxxx, Xxxx Xxxxxx, Xxxxxx
Xxxxxxxx, Xxxxxx Xxxxxxxx, Xxxxxxx X. Xxxxxxx, Xxxx Xxxxxxxxxx, and Xxxx X.
Xxxxx (such individuals being herein collectively referred to as the
"STOCKHOLDERS"), with the Stockholders being the Company's only stockholders.
WHEREAS, the respective Boards of Directors of Newco and the Company
(collectively referred to as "CONSTITUENT CORPORATIONS") deem it advisable and
in the best interests of the Constituent Corporations and their respective
stockholders that Newco merge with and into the Company (the "MERGER"); and
WHEREAS, contemporaneous with the consummation of the Merger, PalEx
subsidiaries have acquired all the outstanding capital stock of Acme, which owns
a 17% ownership interest in Western, and ESP; and
WHEREAS, immediately prior to the Closing, Newco acquired Xxxx Xxxxxxxx'x
33% ownership interest in Western pursuant to the terms of the Western
Acquisition Agreement; and
WHEREAS, the Company owns a 50% ownership interest in Western; and
WHEREAS, the Boards of Directors of the Constituent Corporations have
approved and adopted this Agreement as a plan of reorganization within the
provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the
"CODE"); and
WHEREAS, the stockholders of the Constituent Corporations have approved
the Merger in accordance with the GCL and the Colorado Act; and
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
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ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME" means Acme Barrel Company, Inc., an Illinois corporation.
"ACME ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated the date hereof, among PalEx, Acme Acquisition, Inc., Acme
(immediately prior to becoming a subsidiary of PalEx), the stockholders of Acme,
Xxxxxx Xxxxxxxx and Xxxxxx X. Xxxxxxxx.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"BALANCE SHEET DATE" means December 31, 1997.
"CLOSING" has the meaning set forth in SECTION 3.4.
"CLOSING DATE" has the meaning set forth in SECTION 3.4.
"CODE" has the meaning set forth in the third paragraph of this Agreement.
"COLORADO ACT" means the Colorado Business Corporation Act.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY COMMON STOCK" has the meaning set forth in SECTION 3.1.
"COMPETITIVE BUSINESS" means any business that competes with the Company,
including, without limitation, any business that (a) reconditions, recycles,
repairs, markets, distributes, brokers, manages or transports drums or barrels
and other logistics services with respect thereto; or (b) competes with the
Company for raw materials (E.G., open top and closed top drums); PROVIDED,
HOWEVER, that such term shall not include the businesses of manufacturing,
reconditioning, recycling and repairing, and marketing, distributing, brokering,
leasing, managing and transporting, plastic drums, plastic barrels, plastic
pails and plastic intermediate bulk containers.
"CONSTITUENT CORPORATIONS" has the meaning set forth in the second
paragraph of this Agreement.
"CSC" means, collectively, Consolidated Drum Reconditioning Co., Inc. and
its Affiliates, certain assets of which were acquired by a subsidiary of PalEx
on February 12, 1998.
"EFFECTIVE TIME" has the meaning set forth in SECTION 2.2.
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"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, preemptive rights,
rights of first refusal, reservations, restrictions or other encumbrances or
defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 4.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERISA" has the meaning set forth in SECTION 4.17.
"ERISA AFFILIATE" has the meaning set forth in SECTION 4.17.
"ESP" means ESP Realty Corp., Inc., an Illinois corporation that is an
Affiliate of Xxxxxx Xxxxxxxx and owns real property used in the business of
Acme.
"ESP ACQUISITION AGREEMENT" means the Acquisition Agreement and Plan of
Reorganization dated as of the date hereof, by and among PalEx, Acme
(immediately after the transactions contemplated by the Acme Acquisition
Agreement), ESP and the stockholder of ESP.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 4.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
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"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"GCL" means General Corporation Law of the State of Delaware, as amended.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 7.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL ADVERSE EFFECT" has the meaning set forth in SECTION 5.6.
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 4.10.
"MERGER" has the meaning set forth in the second paragraph of this
Agreement.
"MERGER FILINGS" has the meaning set forth in SECTION 2.2.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 4.4.
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"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 4.11.
"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of December 31, 1997, (b) Encumbrances for property
or ad valorem Taxes not yet due and payable or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the Company's books in accordance with GAAP, and (c)
obligations under operating and capital leases described in SCHEDULE 4.10.
"PLAN" has the meaning set forth in SECTION 4.17.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 7.5.
"QUALIFIED PLANS" has the meaning set forth in SECTION 4.17.
"REGISTRATION RIGHTS AGREEMENT" has the meaning set forth in SECTION 6.4.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of this
Agreement.
"SURVIVING CORPORATION" has the meaning set forth in SECTION 2.1.
"TAXES" has the meaning set forth in SECTION 4.19.
"THIRD PERSON" has the meaning set forth in SECTION 7.3.
"WESTERN" means Western Container Limited Liability Company, a Wyoming
limited liability company.
"WESTERN ACQUISITION AGREEMENT" means the Acquisition Agreement dated as
of the date hereof, among PalEx, Newco and Xxxx Xxxxxxxx.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
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(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE II
THE MERGER AND THE SURVIVING CORPORATION
2.1. THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time in accordance with the Colorado Act and the
GCL, Newco shall be merged with and into the Company (the "MERGER") and the
separate existence of Newco shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as the
"SURVIVING CORPORATION").
2.2. EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "EFFECTIVE TIME") as (a) holders of a majority of the Company
Common Stock approve the Merger, and (b) a certificate of merger and articles of
merger, in forms mutually acceptable to PalEx and the Company, are filed with
the Secretaries of State of the States of Delaware and Colorado, respectively
(the "MERGER FILINGS"). The Merger Filings shall be made simultaneously with or
as soon as practicable after the execution of this Agreement and the Closing.
2.3. ARTICLES OF INCORPORATION, BY-LAWS AND BOARD OF DIRECTORS OF
SURVIVING CORPORATION. As a result of the Merger and at the Effective Time:
(a) the Articles of Incorporation of the Company in effect
immediately prior to the Effective Time shall become the Articles of
Incorporation of the Surviving Corporation, and thereafter may be amended
in accordance with their terms and as provided in the Colorado Act;
(b) the By-laws of the Company in effect immediately prior to the
Effective Time shall become the By-laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided
by the Articles of Incorporation of the Surviving Corporation and the
Colorado Act; and
(c) the Board of Directors of Newco as constituted immediately prior
to the Effective Time shall be the Board of Directors of the Surviving
Corporation.
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ARTICLE III
CONVERSION OF SHARES
3.1. CONVERSION OF COMPANY SHARES; CASH PAYMENT TO DISSENTER.
(a) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of any capital stock of the Company, the
issued and outstanding shares of common stock, no par value, of the
Company as of the Effective Time (the "COMPANY COMMON STOCK"), other than
the 400 shares of Company Common Stock held by Xxxxxx X. Xxxxx, shall be
converted into the right to receive, and become exchangeable for, an
aggregate of 139,225 shares of PalEx Common Stock, which shares of PalEx
Common Stock shall be exchangeable for all the Company Common Stock at the
Effective Time and issued to the Stockholders as set forth on SCHEDULE
3.1.
(b) The parties hereto acknowledge that Xxxxxx X. Xxxxx is
dissenting from the Merger in accordance with the Colorado Act, and at the
Effective Time his shares of Company Common Stock shall be converted into
the right to receive, and become exchangeable for, $271,276 in cash, which
amount shall be paid to Xxxxxx X. Xxxxx at the Closing by check or wire
transfer upon receipt of his certificate representing Company Common
Stock, duly endorsed in blank by such Stockholder or accompanied by duly
executed blank stock powers.
3.2. CONVERSION OF NEWCO SHARES. At the Effective Time, by virtue of the
Merger and without any action on the part of PalEx Container Systems, Inc., a
Delaware corporation and wholly-owned subsidiary of PalEx, as the sole holder of
capital stock of Newco, each issued and outstanding share of common stock, par
value $.01 per share, of Newco shall be converted into one share of common
stock, no par value per share, of the Surviving Corporation.
3.3. EXCHANGE OF CERTIFICATES. At the Closing, (a) each Stockholder shall
furnish to PalEx the certificates representing its Company Common Stock, duly
endorsed in blank by such Stockholder or accompanied by duly executed blank
stock powers, and (b) PalEx shall deliver to each Stockholder certificates
representing the shares of PalEx Common Stock to be delivered to such
Stockholder pursuant to SECTION 3.1 and in accordance with SECTION 9.2. Each
Stockholder agrees promptly to cure any deficiencies with respect to the
endorsement of the certificates or other documents of conveyance with respect to
the Company Common Stock or with respect to the stock powers accompanying the
Company Common Stock.
3.4. CLOSING. The consummation of the Merger and exchange of shares
described in SECTION 3.3 hereof and the other transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, 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 is herein referred to as the
"CLOSING DATE."
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
The Stockholders jointly and severally represent and warrant to PalEx as
follows:
4.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Colorado, and Western is a limited liability company duly organized, validly
existing and in good standing under the Laws of the State of Wyoming. Each of
the Company and Western is duly authorized and qualified to do business under
all applicable Laws and to carry on its business in the places and in the manner
as now conducted. Each of the Company and Western has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. SCHEDULE 4.1
contains a list of all jurisdictions in which each of the Company and Western is
authorized or qualified to do business. True, complete and correct copies of the
Articles of Incorporation and By-laws, each as amended, of the Company and the
organizational and charter documents of Western are attached hereto as SCHEDULE
4.1. Correct and complete copies of all stock records and minute books of the
Company and the limited liability records of Western for the past five years
have been provided to PalEx, and correct and complete copies of all other stock
records and minute books of the Company and member books and records of Western
have been made available to PalEx.
4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to effect the Merger. Each Stockholder has
the full legal right, power and authority to enter into this Agreement.
The execution, delivery and performance of this Agreement have been
approved by the board of directors of the Company and by the Stockholders
as required by the Colorado Act. No additional corporate proceedings on
the part of the Company is necessary to authorize the execution and
delivery of this Agreement and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and the Stockholders, and, assuming
the due authorization, execution and delivery hereof by PalEx and Newco,
constitutes a valid and binding agreement of the Company and each
Stockholder, enforceable against the each of them in accordance with its
terms.
(b) The execution and delivery of this Agreement by the Company and
the Stockholders do not, and the consummation by the Company and the
Stockholders of the transactions contemplated hereby will not, violate or
result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the properties or assets of the Company under any of the terms,
conditions or provisions of, (i) the Articles of Incorporation or By-laws
of the Company or the organizational and charter documents of Western,
(ii) any Laws applicable to the Stockholders, the Company or Western or
any of its properties or assets, or (iii) except as set forth in SCHEDULE
4.2, any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, lease or other instrument, obligation or
agreement of any kind
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to which any Stockholder, the Company or Western is now a party or by
which the Company or Western or any of their respective properties or
assets may be bound or affected.
(c) Except for the Merger Filings and as set forth in SCHEDULE 4.2,
no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any Governmental Authority or third
party is necessary for the execution and delivery of this Agreement by the
Company and the Stockholders or the consummation by the Company and the
Stockholders of the transactions contemplated hereby. Except as set forth
in SCHEDULE 4.2, none of the customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company or Western is a party requires notice to, or the consent or
approval of, any third party for the execution and delivery of this
Agreement by the Company and the Stockholders and the consummation of the
transactions contemplated hereby.
4.3. CAPITALIZATION. The authorized capital stock of the Company consists
solely of 9,000 shares of Company Common Stock, 3,000 of which are issued and
outstanding. The Company owns, of record and beneficially, a 50% equity interest
in Western, free and clear of all Encumbrances except for those created by PalEx
and those set forth in SCHEDULE 4.3. All of the issued and outstanding shares of
Company Common Stock are owned beneficially and of record by the Stockholders as
set forth in SCHEDULE 4.3. All of the issued and outstanding shares of the
Company Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, and were offered, issued, sold and delivered by the
Company in compliance with all applicable Laws, including, without limitation,
those Laws concerning the issuance of securities. None of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
At the Effective Time, by virtue of the Merger, assuming Newco is a wholly-owned
subsidiary of PalEx, PalEx will acquire good and marketable title in all the
outstanding capital stock of the Surviving Corporation, free and clear of all
Encumbrances except for those created by PalEx and those set forth in SCHEDULE
4.3. Except as set forth in SCHEDULE 4.3, no subscription, option, warrant,
call, convertible or exchangeable security, other conversion right or commitment
of any kind exists which obligates the Company to issue any of its capital
stock, the Stockholders to transfer any of the Company Common Stock, or the
Company to transfer any of it ownership interest in Western.
4.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded and, within the past two years, there has not been any sale
or spin-off of a significant amount of assets of the Company or any Affiliate of
the Company other than in the ordinary course of business. The Company owns no
capital stock of PalEx. The Company has not acquired any of its capital stock
during the past two years. Except as set forth in SCHEDULE 4.4, the Company has
no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its capital stock or any interest therein or to pay any dividend or make
any distribution in respect thereof. Neither the voting stock structure of the
Company nor the relative ownership of shares among any of the Company's
stockholders has been altered or changed within the last two years in
contemplation of the Merger. None of the shares of Company Common Stock was
issued pursuant to awards, grants or bonuses, and there has been no transaction
or action taken with respect to the equity ownership of the Company in
contemplation of the Merger that would prevent PalEx from accounting for the
Merger under the pooling-of-interests method of accounting in accordance with
Opinion No. 16 of the Accounting Principles Board ("OPINION NO. 16").
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4.5. SUBSIDIARIES. Except as set forth in SCHEDULE 4.5, neither the
Company nor Western owns, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into or exchangeable for
capital stock or any other equity interest in any corporation, association or
other business entity. Except as set forth in SCHEDULE 4.5, neither the Company
nor Western is, directly or indirectly, a participant in any joint venture,
limited liability company, partnership or other noncorporate entity.
4.6. FINANCIAL STATEMENTS.
(a) The Company has delivered to PalEx complete and correct copies
of the following financial statements the unaudited balance sheets of
Western as of December 31, 1995, 1996 and 1997 and the related audited
statements of operations, stockholders' equity and cash flows for the
three-year period ended December 31, 1997, together with the related notes
and schedules (such balance sheets, the related statements of operations,
stockholders' equity and cash flows and the related notes and schedules
are referred to herein as the "FINANCIAL STATEMENTS"). The Financial
Statements are attached as SCHEDULE 4.6 to this Agreement.
(b) Except as set forth in SCHEDULE 4.6, the Financial Statements
have been prepared from the books and records of Western in conformity
with GAAP and present fairly the financial position and results of
operations of Western as of the dates of such statements and for the
periods covered thereby. The books of account of Western have been kept
accurately in all material respects in the ordinary course of business,
the transactions entered therein represent bona fide transactions, and the
revenues, expenses, assets and liabilities of Western have been properly
recorded therein in all material respects.
4.7. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 4.7, as
of the Balance Sheet Date, neither the Company nor Western has, nor has it
incurred since that date, any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except (a) liabilities,
obligations or contingencies (i) that are accrued or reserved against in the
Financial Statements or reflected in the notes thereto or (ii) that were
incurred after the Balance Sheet Date and were incurred in the ordinary course
of business and consistent with past practices, and (b) liabilities and
obligations that are of a nature not required to be reflected in the Financial
Statements prepared in accordance with GAAP and that were incurred in the normal
course of business and are described in SCHEDULE 4.7. SCHEDULE 4.7 contains a
reasonable estimate by the Stockholders of the maximum amount which may be
payable with respect to liabilities of the Company and Western that are not
fixed. For each such liability for which the amount is not fixed or is
contested, the Company and Western has provided a summary description of the
liability together with copies of all relevant documentation relating thereto.
SCHEDULE 4.7 sets forth the Company's and Western's outstanding principal amount
of indebtedness for borrowed money (including overdrafts) as of the date hereof.
4.8. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 4.8 sets forth an accurate
list of the accounts and notes receivable of the Company and Western as of the
Balance Sheet Date and of those generated between the Balance Sheet Date and the
second business day preceding the Closing Date, including any such amounts which
are not reflected in the Financial Statements as of the Balance Sheet Date.
Receivables from and advances to employees of the Company and Western, the
Stockholders and any entities or persons related
10
to or Affiliates of the Stockholders are separately identified in SCHEDULE 4.8.
SCHEDULE 4.8 also sets forth an accurate aging of all accounts and notes
receivable of the Company and Western as of the Balance Sheet Date, showing
amounts due in 30-day aging categories. The trade and other accounts receivable
of the Company and Western, including without limitation those classified as
current assets on the Financial Statements as of the Balance Sheet Date, are
bona fide receivables, were acquired in the ordinary course of business, and are
stated in accordance with GAAP.
4.9. ASSETS.
(a) SCHEDULE 4.9 sets forth an accurate list of all real and
personal property included in "property and equipment" on the Financial
Statements as of the Balance Sheet Date and all other tangible assets of
the Company and Western with a book value in excess of $10,000 (i) owned
by the Company or Western as of the Balance Sheet Date or (ii) acquired
since the Balance Sheet Date, including in each case true, complete and
correct copies of leases for significant equipment and for all real
property leased by the Company or Western and descriptions of all real
property on which buildings, warehouses, workshops, garages and other
structures used in the operation of the business of the Company or Western
are situated. SCHEDULE 4.9 indicates which assets used in the operation of
the business of the Company or Western are currently owned by the
Stockholders or Affiliates of the Company or the Stockholders. Except as
specifically identified in SCHEDULE 4.9, to the knowledge of the Company
and Western after due inquiry, all of the tangible assets, vehicles and
other significant machinery and equipment of the Company and Western
listed in SCHEDULE 4.9 are in good working order and condition, ordinary
wear and tear excepted, and have been maintained in accordance with
standard industry practices. All fixed assets used by the Company or
Western in its business are either owned by the Company or Western, as the
case may be, or leased under agreements identified in SCHEDULE 4.9. All
leases set forth in SCHEDULE 4.9 are in full force and effect and
constitute valid and binding agreements of the Company or Western, as the
case may be, and to the knowledge of the Company and Western, the other
parties thereto in accordance with their respective terms. SCHEDULE 4.9
contains true, complete and correct copies of all title reports and title
insurance policies received or owned by the Company or Western. SCHEDULE
4.9 also includes a summary description of all plans or projects involving
the opening of new operations, expansion of existing operations or the
acquisition of any real property or existing business, to which management
of the Company or Western has devoted any significant effort or
expenditure in the two-year period prior to the date of the Agreement,
which if pursued by the Company or Western would require additional
expenditures of capital.
(b) Each of the Company and Western has good and indefeasible title
to the tangible and intangible personal property and the real property
owned and used in its business, including the properties identified in
SCHEDULE 4.9, free and clear of all Encumbrances other than Permitted
Encumbrances and those set forth in SCHEDULE 4.9.
(c) The tangible and intangible assets of each of the Company and
Western include all the assets used in the operation of the business of
the Company and Western, respectively, as conducted at the Balance Sheet
Date, except for dispositions of such assets since such date in the
ordinary course of business, consistent with past practices.
11
(d) Except as set forth in this SECTION 4.9 and in the other
representations and warranties in this Agreement, the Stockholders are
making no representations or warranties as to the condition of the assets
of the Company or Western, including, without limitation, any implied
warranties or any representation or warranty as to merchantability or
fitness for any particular purpose and, subject to the representations set
forth in this Agreement, such assets are being purchased "as is," "where
is" and with all faults.
4.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 4.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's or Western's revenues for the
fiscal year ended on the Balance Sheet Date (the "MATERIAL CUSTOMERS"),
and (ii) all material executory contracts, commitments and similar
agreements to which the Company or Western is currently a party or by
which it or any of its properties is bound, including, but not limited to,
(A) all customer contracts in excess of $10,000, individually, or $25,000
in the aggregate, including, without limitation, consignment contracts,
(B) contracts with any labor organizations, (C) leases providing for
annual rental payments in excess of $5,000, individually, or $10,000 in
the aggregate, (D) loan agreements, (E) pledge and security agreements,
(F) indemnity or guaranty agreements or obligations , (G) bonds, (H)
notes, (I) mortgages, (J) joint venture or partnership agreements, (K)
options to purchase real or personal property, and (L) agreements relating
to the purchase or sale by the Company or Western of assets (other than
oral agreements relating to sales of inventory or services in the ordinary
course of business, consistent with past practices) or securities for more
than $5,000, individually, or $10,000 in the aggregate. Prior to the date
hereof, the Company and Western have made available to PalEx complete and
correct copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 4.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company or Western, threatened to cancel or substantially reduce its
purchases of the Company's or Western's products or services, and (ii)
each of the Company and Western is in compliance with all material
commitments and obligations pertaining to it under such agreements and is
not in default under any the agreements described in SUBSECTION (A), no
notice of default has been received by either the Company or Western, and
the Stockholders, the Company and Western are aware of no basis therefor.
(c) Neither the Company nor Western is a party to any governmental
contracts subject to price redetermination or renegotiation. Neither the
Company nor Western is required to provide any bonding or other financial
security arrangements in any material amount in connection with any
transactions with any of its customers or suppliers.
(d) SCHEDULE 4.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company or Western is
a party. Each of the Company and Western has a sufficient supply of
uncommitted inventory to fulfill its bartering obligations with third
parties.
4.11. PERMITS. SCHEDULE 4.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company
12
or Western, including, without limitation, permits, licenses and operating
authorizations, titles (including motor vehicle titles and current
registrations), fuel permits, franchises, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by the Company or
Western (the "PERMITS"). The Permits are valid, and neither the Company nor
Western has received any written notice that any Governmental Authority intends
to cancel, terminate or not renew any such license, operating authorization,
franchise, permit or other governmental authorization. The Permits are all the
permits that are required by Law for the operation of the business of the
Company and Western as conducted at the Balance Sheet Date and the ownership of
the assets of the Company and Western. The Company and Western have conducted
and are conducting their respective businesses in substantial compliance with
the requirements, standards, criteria and conditions set forth in the Permits,
as well as the applicable orders, approvals and variances related thereto, and
is not in violation of any of the foregoing. Except as specifically provided in
SCHEDULE 4.11, the transactions contemplated by this Agreement will not result
in a default under or a breach or violation of, or adversely affect the rights
and benefits afforded to the Company or Western by, any Permits.
4.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 4.12, (a)
each of the Company and Western has complied with and is in compliance with all
Environmental Laws, including, without limitation, Environmental Laws relating
to air, water, land and the generation, storage, use, handling, transportation,
treatment or disposal of Hazardous Substances; (b) each of the Company and
Western has obtained and complied with all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Substances and has reported, to the extent required by all Environmental Laws,
all past and present sites owned or operated by the Company or Western where
Hazardous Substances have been treated, stored, disposed of or otherwise
handled; (c) there have been no "releases" or threats of "releases" (as defined
in any Environmental Laws) at, from, in or on any property owned or operated by
the Company or Western; (d) there is no on-site or off-site location to which
the Company or Western has transported or disposed of Hazardous Substances or
arranged for the transportation or disposal Hazardous Substances which is the
subject of any federal, state, local or foreign enforcement action or any other
investigation which could lead to any claim against the Surviving Corporation,
PalEx or Newco for any clean-up cost, remedial work, damage to natural resources
or personal injury, including, but not limited to, any claim under (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) the Resource Conservation and Recovery Act, (iii) the Hazardous
Materials Transportation Act, or (iv) comparable state and local statutes and
regulations; and (e) neither the Company nor Western has any contingent
liability in connection with any release or disposal of any Hazardous Substance
into the environment.
4.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 4.13,
neither the Company nor Western is bound by or subject to any arrangement with
any labor union. Except as set forth in SCHEDULE 4.13, no employees of the
Company or Western are represented by any labor union or covered by any
collective bargaining agreement nor, to the Company's, Western's or the
Stockholders' knowledge, is any campaign to establish such representation in
progress. There is no pending or, to the Company's, Western's or the
Stockholders' knowledge, threatened labor dispute involving the Company, Western
or any group of its employees, nor has the Company or Western experienced any
significant labor interruptions over the past five years. Neither the Company,
Western nor any Stockholder has any knowledge of any significant issues or
problems in connection with the relationship of the Company or Western with its
employees.
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4.14. INSURANCE. SCHEDULE 4.14 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and Western
and of all insurance loss runs or workmen's compensation claims received for the
past five policy years. Except as set forth in SCHEDULE 4.14, none of such
policies is a "claims made" policy. To the Company's and Western's knowledge,
after due inquiry, the insurance policies set forth in SCHEDULE 4.14 provide
adequate coverage against the risks involved in the Company's and Western's
businesses. Such policies are currently in full force and effect.
4.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 4.15 sets forth an
accurate schedule of all officers, directors and employees of the Company and
Western with annual salaries of $70,000 or more, listing the rate of
compensation (and the portions thereof attributable to salary, bonus, benefits
and other compensation, respectively) of each of such persons as of (a) the
Balance Sheet Date and (b) the date hereof. Attached to SCHEDULE 4.15 are true,
complete and correct copies of each employment or consulting agreement with any
employee of the Company, Western or any Stockholder.
4.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 4.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company or Western is bound or under which the Company or Western has any rights
or obligations.
4.17. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 4.17 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company, Western or an ERISA
Affiliate has any current or future obligation or liability or under which
any present or former employee of the Company, Western or an ERISA
Affiliate, or such present or former employee's dependents or
beneficiaries, has any current or future right to benefits (each such plan
and arrangement referred to hereinafter as a "PLAN"), together with true
and complete copies of such Plans, arrangements and any trusts related
thereto, and classifications of employees covered thereby as of December
31, 1997. Except as set forth on SCHEDULE 4.17, neither the Company,
Western nor any ERISA Affiliate sponsors, maintains or contributes
currently, or at any time during the preceding five years, to any plan,
program, fund or arrangement that constitutes an employee pension benefit
plan. Each Plan may be terminated by the Company, Western, or if
applicable, by an ERISA Affiliate at any time without any liability, cost
or expense, other than costs and expenses that are reasonable and
customary in connection with the termination of a Plan. For purposes of
this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning given that term in Section 3(2) of ERISA, and the term "ERISA
AFFILIATE" means any corporation or trade or business under common control
with the Company or Western as determined under Section 414(b), (c), (m)
or (o) of the Code.
(b) Each Plan listed on SCHEDULE 4.17 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company,
Western and each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as
defined in Section 4001(a)(3) of ERISA), all reports and other documents
required under ERISA or other applicable Law to be filed with any
Governmental Authority, the failure of which to file could
14
reasonably be expected to result in a material liability to the Company,
Western or any ERISA Affiliate, or required to be distributed to
participants or beneficiaries, have been duly filed or distributed. True
and complete copies of all such reports and other documents with respect
to the past five years for each Plan have been provided to PalEx. No
"ACCUMULATED FUNDING DEFICIENCY" (as defined in Section 412(a) of the
Code) with respect to any Plan has been incurred (without regard to any
waiver granted under Section 412 of the Code), nor has any funding waiver
from the Internal Revenue Service been received or requested. Each Plan
that is intended to be "QUALIFIED" within the meaning of Section 401(a) of
the Code (a "QUALIFIED PLAN") is, and has been during the period from its
adoption to the date hereof, so qualified, both as to form and operation
and all necessary approvals of Governmental Authorities, including a
favorable determination as to the qualification under the Code of each of
such Qualified Plans and each amendment thereto, have been timely
obtained. Except as set forth in SCHEDULE 4.17, all accrued contribution
obligations of the Company and Western with respect to any Plan have
either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
(c) No Plan has incurred, and neither the Company, Western nor any
ERISA Affiliate has incurred, any liability for excise tax or penalty due
to the Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
(d) Neither the Company, Western nor any ERISA Affiliate has made
any promises of retirement or other benefits to employees, except as set
forth in the Plans, and neither the Company, Western nor any ERISA
Affiliate maintains or has established any Plan that is a "WELFARE BENEFIT
PLAN" within the meaning of Section 3(1) of ERISA that provides for
continuing benefits or coverage for any participant or any beneficiary of
a participant after such participant's termination of employment, except
as may be required by Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code, and at the expense of the participant or the
beneficiary of the participant, or retiree medical liabilities. Neither
the Company, Western nor any ERISA Affiliate maintains, has established or
has ever participated in a multiple employer welfare benefit arrangement
as described in Section 3(40)(A) of ERISA. Except as set forth in SCHEDULE
4.17, neither the Company, Western, nor any ERISA Affiliate has any
current or future obligation or liability with respect to a Plan pursuant
to the provisions of a collective bargaining agreement.
(e) Neither the Company, Western nor any ERISA Affiliate has
incurred any material liability to the Pension Benefit Guaranty
Corporation in connection with any Plan. The assets of each Plan that is
subject to Title IV of ERISA are sufficient to provide the benefits under
such Plan, the payment of which the Pension Benefit Guaranty Corporation
would guarantee if such Plan were terminated, and such assets are also
sufficient to provide all other "BENEFITS LIABILITIES" (as defined in
ERISA Section 4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's or Western's knowledge, threatened claims, lawsuits or
actions (other than routine claims for benefits in the ordinary course)
asserted or instituted against, and neither the Company, Western nor any
ERISA
15
Affiliate has knowledge of any threatened litigation or claims against,
the assets of any Plan or its related trust or against any fiduciary of a
Plan with respect to the operation of such Plan. To the Company's and
Western's knowledge, there are no investigations or audits of any Plan by
any Governmental Authority currently pending and there have been no such
investigations or audits that have been concluded that resulted in any
liability to the Company, Western or any ERISA Affiliate that has not been
fully discharged. Neither the Company, Western nor any ERISA Affiliate has
participated in any voluntary compliance or closing agreement programs
established with respect to the form or operation of a Plan.
(g) Neither the Company, Western nor any ERISA Affiliate has engaged
in any prohibited transaction, within the meaning of Section 406 of ERISA
or Section 4975 of the Code, in connection with any Plan. Except as set
forth in SCHEDULE 4.17, neither the Company, Western nor any ERISA
Affiliate is, or ever has been, a participant in or is obligated to make
any payment to a multiemployer plan. In the last two years, no person or
entity that was engaged by the Company, Western or an ERISA Affiliate as
an independent contractor can or will be characterized or deemed to be an
employee of the Company, Western or an ERISA Affiliate under applicable
Laws for any purpose whatsoever, including, without limitation, for
purposes of federal, state and local income taxation, workers'
compensation and unemployment insurance and Plan eligibility.
4.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
4.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company, Western and the Stockholders, threatened against or
affecting the Company or Western, at law or in equity, or before or by any
Governmental Authority having jurisdiction over the Company or Western. No
written notice of any claim, action, suit or proceeding, whether pending or
threatened, has been received by the Company or Western and, to the
Stockholders', the Company's and Western's knowledge, there is no basis
therefor. Except to the extent set forth in SCHEDULE 4.18, each of the Company
and Western has conducted and is conducting its business in compliance with all
Laws applicable to the Company and Western, and its respective assets or the
operation of its business.
4.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. Each of the Company and Western has
timely filed all requisite federal, state, local and other tax returns for all
fiscal periods ended on or before the Closing, and has duly paid in full or made
adequate provision in the Financial Statements for the payment of all Taxes for
all periods ending at or prior to the Closing Date. Each of the Company and
Western has duly withheld and paid or remitted all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other person or entity that
required withholding under any applicable Law, including, without limitation,
any amounts required to be withheld or collected with respect to social
security, unemployment compensation, sales or use taxes or workers'
compensation. Except as set forth in SCHEDULE 4.19, there are no examinations in
progress or claims against the Company or Western relating to
16
Taxes for any period or periods prior to and including the Balance Sheet Date
and no written notice of any claim for Taxes, whether pending or threatened, has
been received. Neither the Company nor Western has granted or been requested to
grant any extension of the limitation period applicable to any claim for Taxes
or assessments with respect to Taxes. Neither the Company nor Western is a party
to any Tax allocation or sharing agreement and is not otherwise liable or
obligated to indemnify any person or entity with respect to any Taxes. The
amounts shown as accruals for Taxes on the Financial Statements as of the
Balance Sheet Date are sufficient for the payment of all Taxes for all fiscal
periods ended on or before that date. True and complete copies of (a) any tax
examinations, (b) extensions of statutory limitations and (c) the federal, state
and local Tax returns of the Company and Western for the last three fiscal years
have been previously provided to PalEx. There are no requests for ruling in
respect of any Tax pending between either the Company or Western and any Taxing
authority. Each of the Company and Western currently utilizes the accrual method
of accounting for income tax purposes. Such method of accounting has not changed
in the past five years.
4.20. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth in SCHEDULE 4.20, each the Company and Western has conducted its
operations in the ordinary course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company or Western;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company or Western, individually or in the aggregate;
(c) any change in the authorized capital stock of the Company or
ownership interests of Western or in its outstanding securities or any
change in the Stockholders' ownership interests in the Company or Western
or any grant of any options, warrants, calls, conversion rights or
commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or ownership interests or any direct or
indirect redemption, purchase or other acquisition of any of the capital
stock of the Company or ownership interest in Western;
(e) any increase in the compensation payable or to become payable by
the Company or Western to the Stockholders or any of its officers,
directors, employees, consultants or agents, except for ordinary and
customary bonuses and salary increases for employees in accordance with
past practice, which bonuses and salary increases are set forth in
SCHEDULE 4.20;
(f) any significant work interruptions, labor grievances or claims
filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company or Western to any
person, including, without limitation, the Stockholders and their
Affiliates;
17
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company or Western;
(i) any increase in the Company's or Western's indebtedness, other
than accounts payable incurred in the ordinary course of business,
consistent with past practices or incurred in connection with the
transactions contemplated by this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or Western or requiring consent of any party to
the transfer and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's or Western's business;
(l) any waiver of any material rights or claims of the Company or
Western;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company or Western
is a party or any of its property is subject; or
(n) any other material transaction by the Company or Western outside
the ordinary course of business.
4.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
4.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company or
Western has accounts or safe deposit boxes; (b) the names in which the accounts
or boxes are held; (c) the type of account and the cash, cash equivalents and
securities held in such account as of the second business day prior to the
Closing, none of which assets have been withdrawn from such accounts since such
date except for bona fide business purposes in the ordinary course of the
business of the Company and Western; and (d) the name of each person authorized
to draw thereon or have access thereto. SCHEDULE 4.21 also sets forth the name
of each person, corporation, firm or other entity holding a general or special
power of attorney from the Company or Western and a description of the terms
thereof.
4.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, Western
nor any of its Affiliates has given or offered to give anything of value to any
governmental official, political party or candidate for government office nor
has it otherwise taken any action which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any similar Law.
4.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 4.23, neither the Stockholders nor any other Affiliate of
the Company or Western owns, directly or indirectly, any interest in, or is an
officer, director, employee or consultant of or otherwise receives remuneration
from, any business which is in a Competitive Business or is a competitor,
lessor, lessee, customer or supplier of the Company or Western. Except as set
forth in SCHEDULE 4.23, no officer or director of the Company, Western nor any
Stockholder has nor, during the period beginning January 1, 1996 through
18
the date hereof, had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company or Western.
4.24. INTANGIBLE PROPERTY. SCHEDULE 4.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company or Western. Each of the Company and
Western owns or possesses, and the assets of the Company and Western include,
sufficient legal rights to use all of such items without conflict with or
infringement of the rights of others.
4.25. DISCLOSURE. The Stockholders, the Company and Western have provided
PalEx or its representatives all the information that PalEx has requested in
analyzing whether to consummate the Merger and the other transactions
contemplated by this Agreement. None of the information so provided nor any
representation or warranty of the Company, Western or the Stockholders to PalEx
or Newco in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements herein,
in light of the circumstances under which they were made, not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to the
Stockholders as follows:
5.1. ORGANIZATION. Each of PalEx and Newco is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. PalEx is duly authorized and qualified under all applicable Laws to
carry on its business in the places and in the manner now conducted. Each of
PalEx and Newco has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as such business is
currently being conducted. Correct and complete copies of PalEx's minute books
have been made available to the Company.
5.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx and Newco has the full legal right, power and
authority to enter into this Agreement and the Registration Rights
Agreement and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance of this Agreement and the
Registration Rights Agreement have been approved by the boards of
directors of PalEx and Newco and PalEx, as the sole stockholder of Newco.
No additional corporate proceedings on the part of PalEx or Newco are
necessary to authorize the execution and delivery of this Agreement or the
Registration Rights Agreement and the consummation by PalEx and Newco of
the transactions contemplated hereby. This Agreement and the Registration
Rights Agreement have been duly and validly executed and delivered by
PalEx and Newco, and, assuming the due authorization, execution and
delivery by the Company and the Stockholders, constitutes valid and
binding agreements of PalEx and Newco, enforceable against PalEx and Newco
in accordance with its terms.
19
(b) The execution and delivery of this Agreement by PalEx and Newco,
and the Registration Rights Agreement by PalEx, do not, and the
consummation by PalEx and Newco of the transactions contemplated hereby
will not, violate or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under any of the terms, conditions or
provisions of (i) the Certificate of Incorporation or By-Laws of PalEx or
Newco, (ii) any Law applicable to either PalEx or Newco or any of its
properties or assets or (iii) any material note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind
to which PalEx or Newco is now a party or by which either PalEx or Newco
or any of its properties or assets may be bound or affected.
(c) Except for the Merger Filings and such filings as may be
required under federal or state securities Laws, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority is necessary for the execution and delivery of
this Agreement or the Registration Rights Agreement by PalEx or the
consummation by PalEx or Newco of the transactions contemplated hereby or
thereby.
5.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
the Stockholders pursuant to the Merger are duly authorized and, when issued in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable. The issuance of PalEx Common Stock pursuant to the Merger
will transfer to the Stockholders valid title to such shares of PalEx Common
Stock, free and clear of all Encumbrances, except for any Encumbrances created
by the Stockholders.
5.4. TAX REORGANIZATION REPRESENTATIONS.
(a) Prior to the Merger, PalEx will be in control of Newco within
the meaning of Section 368(c) of the Code.
(b) PalEx has no plan or intention to cause the Surviving
Corporation to issue additional shares of its stock that would result in
PalEx losing control of the Surviving Corporation within the meaning of
Section 368(c) of the Code.
(c) PalEx has no plan or intention to reacquire any of its stock
issued in the Merger.
(d) PalEx has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with or into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation except for transfers of stock to another corporation
controlled by PalEx; or to cause the Surviving Corporation to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by PalEx.
(e) Following the Closing, PalEx's intention is that the Surviving
Corporation will continue the historic business
20
of the Company or use a significant portion of the historic business
assets of the Company in a business, all as required to satisfy the
"continuity of business enterprise" requirement under Section 368 of the
Code.
(f) PalEx does not own, nor has it owned during the past five years,
any shares of the stock of the Company.
(g) Each of PalEx and Newco is undertaking the Merger for a bona
fide business purpose and not merely for the avoidance of federal income
tax.
(h) Neither PalEx nor Newco is an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
5.5. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it prior to the date hereof under each of the
Securities Act of 1933, as amended (the "1933 ACT"), the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), and the respective rules and regulations
thereunder, (a) all of which, as amended, if applicable, complied when filed in
all material respects with all applicable requirements of the appropriate Act
and the rules and regulations thereunder, and (b) none of which, as amended, if
applicable, contains any untrue statement of material fact or, except for
disclosure of the acquisition of the assets, and assumption of the liabilities,
of CSC and its Affiliates, omits to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading.
5.6. LEGAL COMPLIANCE. Neither PalEx nor Newco is (a) in violation of its
charter or by-laws, (b) in default in any material respect, and no event has
occurred that, with notice or lapse of time or both, would constitute a material
default under any in material agreement to which PalEx or Newco is party or by
which its assets are subject, or (c) in, or, as to CSC, to the actual knowledge
of PalEx in, violation, in any material respect, of any material Law to which
either PalEx or Newco or its properties or assets may be subject, in each case,
except to the extent that such violation or default would not reasonably be
expected have a material adverse effect on the business, operations, properties,
condition (financial or otherwise), assets, liabilities (contingent or
otherwise), or results of operations of PalEx and its subsidiaries, taken as a
whole (a "MATERIAL ADVERSE EFFECT").
5.7. LITIGATION AND COMPLIANCE WITH LAW. There are no claims, actions,
suits or proceedings, pending or, to the knowledge of PalEx, threatened against
PalEx or Newco, at law or in equity, before or by any Governmental Authority
having jurisdiction over PalEx or Newco that, if adversely determined against
PalEx or Newco would reasonably be expected to have a Material Adverse Effect.
Each of PalEx and Newco has conducted and is conducting its business, and to the
actual knowledge of PalEx, CSC is conducting its business, in compliance with
all applicable Laws, except to the extent noncompliance with such Laws would not
reasonably be expected to have a Material Adverse Effect.
5.8. DISCLOSURE. PalEx has fully provided the Stockholders or their
representatives with all the information that the Stockholders have requested in
analyzing whether to consummate the Merger. None of the information so provided
nor any representation or warranty of PalEx contained in this Agreement
21
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE VI
CERTAIN COVENANTS
6.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have the Stockholders released from the personal guarantees of
the Company and Western indebtedness identified in SCHEDULE 6.1. PalEx hereby
agrees to indemnify each Stockholder and hold such Stockholder harmless for any
amounts that such Stockholder is required to pay in connection with the
enforcement of any obligations under such personal guarantees after the Closing,
including without limitation any reasonable attorneys' fees and expenses
incurred in connection therewith.
6.2. FUTURE COOPERATION; TAX MATTERS. The Stockholders and PalEx shall
each deliver or cause to be delivered to the other following the Closing such
additional instruments as the other may reasonably request for the purpose of
fully carrying out this Agreement. The Stockholders will cooperate and use their
commercially reasonable best efforts to have the present officers, directors and
employees of the Company and Western cooperate with PalEx, Newco and the
Surviving Corporation at and after the Closing in furnishing information,
evidence, testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to matters
pertaining to all periods prior to the Closing. The Stockholders will cooperate
with the Surviving Corporation in the preparation of all tax returns covering
the period from the beginning of the Company's and Western's current tax year
through the Closing. In addition, PalEx will provide the Stockholders with
access to such of its books and records as may be reasonably requested by the
Stockholders in connection with federal, state and local tax matters relating to
periods prior to the Closing. The party requesting cooperation, information or
actions under this SECTION 6.2 shall reimburse the other party for all
reasonable out-of-pocket costs and expenses paid or incurred in connection
therewith, which costs and expenses shall not, HOWEVER, include per diem charges
for employees or allocations of overhead charges.
6.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Surviving Corporation following the Closing will pay
Xxxxxx Xxxxxxxx LLP's expenses in connection with its review of the Financial
Statements. The Stockholders will pay their fees, expenses and disbursements and
those of their and the Company's and Western's agents, representatives,
financial advisors, accountants and counsel incurred in connection with the
execution, delivery and performance of this Agreement and any amendments hereto
and the consummation of the transactions contemplated hereby; PROVIDED, HOWEVER,
that Newco will pay such fees, expenses and disbursements up to, but not in
excess of, an amount equal to (a) $1,000,000 less (b) any fees, expenses and
disbursements of Acme, the indemnifying stockholders under the Acme Acquisition
Agreement, ESP Realty Corp., Inc. or Environmental Recyclers of Colorado, Inc.
paid by PalEx, Newco or any Affiliate of PalEx, or for which any such party is
liable.
22
6.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and the Stockholders shall enter into a mutually
acceptable Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT".
6.5. REPAYMENT OF RELATED PARTY INDEBTEDNESS. Concurrently with the
execution of this Agreement, (a) the Stockholders shall repay to the Company or
Western, as the case may be, all amounts outstanding as advances to or
receivables from the Stockholders, each of which advances or receivables is
specifically reflected in SCHEDULE 4.8, and (b) the Company shall repay, or
cause Western to repay, as appropriate, all amounts outstanding under loans to
the Company or Western from the Stockholders, each of which loans to the Company
or Western is specifically reflected in SCHEDULE 4.7.
ARTICLE VII
INDEMNIFICATION
The Stockholders, PalEx and Newco each make the following covenants:
7.1. GENERAL INDEMNIFICATION BY THE STOCKHOLDERS. Subject to SECTIONS 7.4
and 7.5, the Stockholders covenant and agree that they will jointly and
severally indemnify, defend, protect and hold harmless PalEx, Newco and the
Surviving Corporation, and their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates, at all times from and
after the date of this Agreement until the Expiration Date from and against all
Losses incurred by any of such indemnified persons as a result of or arising
from (a) any breach of the representations and warranties of the Stockholders
set forth herein or in the Schedules or certificates delivered in connection
herewith, (b) any breach or nonfulfillment of any covenant or agreement on the
part of the Stockholders or the Company under this Agreement, and (c) all income
Taxes payable by the Company for all periods prior to and including the Closing
Date.
7.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Stockholders and their
respective agents, representatives, Affiliates , beneficiaries and heirs and
employees at all times from and after the date of this Agreement until the
Expiration Date from and against all Losses incurred by any of such indemnified
persons as a result of or arising from (a) any breach of the representations and
warranties of PalEx or Newco set forth herein or in the Schedules or
certificates attached hereto, and (b) any breach or nonfulfillment of any
covenant or agreement on the part of PalEx or Newco under this Agreement.
7.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 7.1, or 7.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel
23
in all commercially reasonable respects in the defense thereof and in any
settlement thereof. Such cooperation shall include, but shall not be limited to,
furnishing the Indemnifying Party with any books, records and other information
reasonably requested by the Indemnifying Party and in the Indemnified Party's
possession or control. After the Indemnifying Party has notified the Indemnified
Party of its intention to undertake to defend or settle any such asserted
liability, and for so long as the Indemnifying Party diligently pursues such
defense, the Indemnifying Party shall not be liable for any additional legal
expenses incurred by the Indemnified Party in connection with any defense or
settlement of such asserted liability; PROVIDED, HOWEVER, that the Indemnified
Party shall be entitled, at its expense, to participate in the defense of such
asserted liability and the negotiations of the settlement thereof. The
Indemnifying Party shall not settle any such Third Person claim without the
consent of the Indemnified Party, unless the settlement thereof imposes no
liability or obligation on, and includes a complete release from liability of,
the Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement if such settlement does not provide for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
7.4. INDEMNIFICATION DEDUCTIBLE. Neither the Stockholders, on the one
hand, nor PalEx, Newco and the Surviving Corporation, on the other hand, shall
be entitled to indemnification from the other under the provisions of SECTION
7.1(A) or SECTION 7.2(A), as the case may be, until such time as, and only to
the extent that, the claims subject to indemnification by such other party
exceed, in the aggregate, $40,000 Notwithstanding the foregoing, the limitations
set forth in this SECTION 7.4 shall not apply to fraudulent misrepresentations.
7.5. INDEMNIFICATION LIMITATION.
(a) Subject to SECTIONS 7.4, the aggregate indemnification
obligation of the Stockholders under SECTION 7.1(A) shall be limited to
50% of (a) the value of any shares of PalEx Common Stock that (i) were
received by the Stockholders in (A) the Merger and/or (B) the merger of
ESP Realty Corp., Inc. into a subsidiary of PalEx under the ESP
Acquisition Agreement and/or (c) the merger of Acme with a subsidiary of
PalEx under the Acme Acquisition Agreement (subject, in each case, to
appropriate adjustments in the event of any stock dividend on, or split-up
or other recapitalization of, the PalEx Common Stock) and (ii) have not
been sold by any Stockholder in a bona fide arms'-length transaction to a
third party that is not an Affiliate of any Stockholder (collectively, the
"PURCHASE PRICE SHARES"), plus (b) the gross proceeds from the sale of
Purchase Price Shares in bona fide arms'-length transactions to a third
party that is not an Affiliate of any Stockholder, less (c) the amount of
any Losses (as such term is defined in the Acme Acquisition Agreement or
the ESP Acquisition Agreement, respectively) paid by the Stockholders as
an indemnifying party under the Acme Acquisition Agreement or the ESP
24
Acquisition Agreement. Indemnification claims under this ARTICLE VII shall
be settled first from the sale or recovery of Purchase Price Shares, to
the extent thereof, and thereafter, from the gross proceeds from prior
bona fide arms'-length sales of Purchase Price Shares to third parties
that are not Affiliates of any Stockholder.
(b) For purposes of this SECTION 7.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by the Stockholders (either by agreement or pursuant
to a judgment or binding determination by an arbitrator) in accordance
with this ARTICLE VII, as reported on The Nasdaq Stock Market or such
other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 7.5 shall not apply to fraudulent
misrepresentations.
7.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VII INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Each Stockholder recognizes and acknowledges that he had in
the past, currently has, and in the future will have, access to certain
confidential information relating to the business of the Company, such as lists
of customers, operational policies, and pricing and cost policies that are, and
following the Closing will be, valuable, special and unique assets of the
Surviving Corporation. Each Stockholder agrees that he will not use or disclose
such confidential information to any person, firm, corporation, association or
other entity for any purpose whatsoever, except as is required in the course of
performing his duties to the Surviving Corporation, Western and/or PalEx, unless
(a) such information becomes known to the public generally through no fault of
such Stockholder, or (b) disclosure is required by Law, PROVIDED that prior to
disclosing any information pursuant to this clause (b) such Stockholder shall,
if possible, give prior written notice thereof to PalEx and the Surviving
Corporation and provide PalEx with the opportunity to contest such disclosure.
In the event of a breach or threatened breach by any Stockholder of the
provisions of this Section, PalEx shall be entitled to an injunction restraining
such Stockholder from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting PalEx from
pursuing any other available remedy for such breach or threatened breach,
including, without limitation, the recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which the Surviving Corporation
and/or PalEx would have no
25
other adequate remedy, each Stockholder agrees that the foregoing covenants may
be enforced against him by injunctions, restraining orders and other equitable
actions.
ARTICLE IX
POOLING-OF-INTERESTS
ACCOUNTING AND INTENDED TAX TREATMENT
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
each Stockholder and the President and Chief Financial Officer of the Company
will execute any documentation reasonably required by PalEx's independent public
accountants to enable PalEx to account for the Merger as a pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed each Stockholder that
PalEx intends to account for the Merger as a pooling-of-interests under Opinion
No. 16. PalEx has also informed each Stockholder that its ability to account for
the Merger as a pooling-of-interests was a material factor considered by PalEx
in its decision to enter into this Agreement. Therefore, pursuant to Opinion No.
16, prior to the publication and dissemination by PalEx of consolidated
financial results which include results of the combined operations of the
Company and PalEx for at least 30 days on a consolidated basis following the
Closing, the Stockholders shall not sell, offer to sell, or otherwise transfer
or dispose of, any shares of the PalEx Common Stock received by the
Stockholders, engage in put, call, short-sale, straddle or similar transactions,
or in any other way reduce the Stockholders' risks of owning shares of PalEx.
The certificates evidencing the PalEx Common Stock to be received by the
Stockholders will bear a legend substantially in the form set forth below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
9.3. TAX-FREE REORGANIZATION. PalEx and the Stockholders are entering into
this Agreement with the intention that the Merger qualify as a tax-free
reorganization for federal income tax purposes, except to the extent of any
"boot" received, and neither PalEx nor the Stockholders will not take any
actions that disqualify the Merger for such treatment.
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. The Stockholders acknowledge the shares of
PalEx Common Stock issued at the Closing in accordance with the terms of this
Agreement (the "RESTRICTED SHARES") will not be
26
registered under the 1933 Act and therefore may not be resold without compliance
with the 1933 Act. The Restricted Shares are being or will be acquired by
Stockholders solely for their own accounts, for investment purposes only, and
with no present intention of distributing, selling or otherwise disposing of
them in connection with a distribution. The Stockholders covenant, warrant and
represent that none of the Restricted Shares will be, directly or indirectly,
offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC. Certificates
representing the Restricted Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. Each Stockholder is able to bear the
economic risk of an investment in the Restricted Shares and can afford to
sustain a total loss of such investment. Each Stockholder has such knowledge and
experience in financial and business matters that it or he is capable of
evaluating the merits and risks of the proposed investment and therefore has the
capacity to protect its or his own interests in connection with the acquisition
of the Restricted Shares pursuant hereto. Each Stockholder represents to PalEx
that it or he is acquiring shares of PalEx Common Stock pursuant to this
Agreement for investment purposes and not with a view to distribution of such
shares of PalEx Common Stock within the meaning of the 1933 Act. Each
Stockholder or its or his representatives have had an adequate opportunity to
ask questions and receive answers from the officers of PalEx concerning, among
other matters, PalEx, its management, its plans for the operation of its
business and potential additional acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as any
Stockholder holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to each Stockholder upon written request a written
statement by PalEx as to its compliance with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, a copy of the most recent annual
or quarterly report of PalEx, and such other reports and documents so
filed as such Stockholder may reasonably request in availing itself of any
rule or regulation of the SEC allowing such Stockholder to sell any such
shares without registration
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ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco, the Surviving Corporation and the Company, and the heirs and legal
representatives of the Stockholders.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among the Stockholders, the
Company, Newco and PalEx and supersede any prior agreement and understanding
relating to the subject matter of this Agreement. This Agreement may be modified
or amended only by a written instrument executed by the Stockholders, the
Company, Newco and PalEx, acting through their respective officers, duly
authorized by their respective Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Except for the engagement of DN Partners LLC by
Acme, each party hereto represents and warrants that it employed no broker or
agent in connection with the transactions contemplated by this Agreement.
Subject to SECTION 6.3, each party agrees to indemnify each other party against
all loss, cost, damages or expense arising out of claims for fees or commissions
of brokers employed or alleged to have been employed by such indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, Newco or the Surviving Corporation, addressed to
them at:
PalEx, Inc.
0000 Xxxx Xxx Xxxx.
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxx
(b) If to any Stockholder, addressed to such Stockholder as follows:
c/o Acme Barrel Company, Inc.
0000 X. 00xx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
28
With a copy (which shall not constitute notice) to:
Barack Xxxxxxxxxx Xxxxxxxxxx Xxxxxxx & Xxxxxxxxx
000 X. Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE IV and ARTICLE V shall survive the Closing for a
period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 4.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 4.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_______________________________
Xxxxxx X. Xxxxx
Vice President and General Counsel
WESTERN CONTAINER ACQUISITION, INC.
By:_______________________________
Xxxxxx Xxxxx
President
ENVIRONMENTAL RECYCLERS OF COLORADO INC.
By:_______________________________
Xxxxxx Xxxxxxxx
President
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Xxxxxxx Bank, Individually
________________________________________
Xxxxx Xxxxx, Individually
________________________________________
Xxxxx Xxxxxxxx, Individually
[DISSENTING]
Xxxxxx X. Xxxxx, Individually
________________________________________
Xxxx Xxxxxx, Individually
________________________________________
Xxxxxxx Xxxxxx, Individually
________________________________________
Xxxxxx Xxxxxxxx, Individually
________________________________________
Xxxxxx Xxxxxxxx, Individually
________________________________________
Xxxxxxx X. Xxxxxxx, Individually
________________________________________
Xxxx Xxxxxxxxxx, Individually
________________________________________
Xxxx X. Xxxxx, Individually
