AGREEMENT AND PLAN OF REORGANIZATION
dated as of the 30th day of September, 1996
by and among
WASTE RECOVERY, INC.
NEW U.S. TIRE RECYCLING CORP.
U.S. TIRE RECYCLING PARTNERS, ▇.▇.
▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇ CAPITAL HOLDINGS, INC.
TIRUS, INC.
TIRUS ASSOCIATES, L.L.C.
ENVIRONMENTAL VENTURE FUND, L.P.
ARGENTUM CAPITAL, L.P.
and
the SHAREHOLDERS named herein
TABLE OF CONTENTS
Page
1. THE MERGER......................................................... 2
1.1 Delivery and Filing of Certificate of Merger.............. 2
1.2 Effective Time of the Merger.............................. 2
1.3 Articles of Incorporation, By-laws and Board of Directors
of Surviving Corporation.................................. 2
1.4 Certain Information With Respect to the Capital Stock
of Tirus, BG, WRI and Newco............................... 3
1.5 Effect of Merger.......................................... 4
1.6 Old Asset Purchase Agreement.............................. 4
2. CONVERSION OF STOCK................................................ 4
2.1 Manner of Conversion...................................... 4
2.2 Earnings Treatment........................................ 6
3. DELIVERY OF SHARES................................................. 6
3.1 Delivery Procedure........................................ 6
4. CLOSING............................................................ 6
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS................................................... 7
(A) Representations and Warranties of the Company and the
Shareholders.............................................. 7
5.1 Authorization............................................. 7
5.2 Organization, Existence and Good Standing of the Company.. 7
5.3 Capital Stock of the Company.............................. 8
5.4 Subsidiaries.............................................. 8
5.5 Financial Statements...................................... 9
5.6 Permits and Intangibles. ................................. 10
5.7 Tax Matters............................................... 10
5.8 Contracts................................................. 13
5.9 No Violations............................................. 14
5.10 Consents.................................................. 14
5.11 Litigation and Related Matters............................ 15
5.12 Compliance with Laws...................................... 15
5.13 Employee Benefit Plans.................................... 15
5.14 Insurance................................................. 17
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5.15 Officers and Directors.................................... 17
5.16 Bank Accounts and Powers of Attorney...................... 17
5.17 Absence of Certain Changes or Events...................... 17
(B) Representations and Warranties of the Shareholders........ 18
5.18 Authority; Ownership...................................... 18
5.19 Preemptive Rights......................................... 18
5.20 No Intention to Dispose of WRI Stock...................... 18
5.21 Validity of Obligations................................... 19
5.22 No Other Representations.................................. 19
6. REPRESENTATIONS AND WARRANTIES OF GP AND THE
PARTNERSHIP........................................................ 19
7. REPRESENTATIONS OF WRI AND NEWCO................................... 19
7.1 Due Organization.......................................... 19
7.2 WRI Stock................................................. 20
7.3 Validity of Obligations................................... 20
7.4 Corporate Power and Authority............................. 20
7.5 No Conflicts.............................................. 21
7.6 Capitalization of WRI and Ownership of WRI Stock.......... 21
7.7 Transactions in Capital Stock............................. 21
7.8 Conformity with Law and Litigation........................ 22
7.9 No Violations............................................. 22
7.10 Taxes..................................................... 22
7.11 Consents.................................................. 24
7.12 Confirmation of Representations and Warranties in Old Asset
Purchase Agreement........................................ 25
7.13 No Other Representations.................................. 25
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
SHAREHOLDERS AND THE COMPANY....................................... 25
8.1 Representations and Warranties; Performance of Obligations.25
8.2 Satisfaction.............................................. 25
8.3 No Litigation............................................. 26
8.4 Employment Agreement...................................... 26
8.5 Consents and Approvals.................................... 26
8.6 Good Standing Certificates................................ 26
8.7 New Asset Purchase Agreement.............................. 26
8.8 Pledge Agreement and Mortgage............................. 26
8.9 Non-Recourse Secured Guaranty............................. 26
8.10 No Material Adverse Change................................ 26
2
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF WRI AND
NEWCO.............................................................. 26
9.1 Representations and Warranties; Performance of Obligations 27
9.2 Satisfaction.............................................. 27
9.3 No Litigation............................................. 27
9.4 Insurance................................................. 27
9.5 Shareholder Releases...................................... 27
9.6 Termination of Related Party Agreements................... 27
9.7 Employment Agreement...................................... 27
9.8 Pledge Agreement and Mortgage............................. 28
9.9 Due Diligence Investigation............................... 28
9.10 Good Standing Certificates................................ 28
9.11 Conditions in Old Asset Purchase Agreement................ 28
9.12 Guaranties................................................ 28
9.13 Escrow Agreement.......................................... 28
9.14 No Material Adverse Effect................................ 28
10. COVENANTS OF THE PARTIES........................................... 28
10.1 Covenants in Old Asset Purchase Agreement................. 28
10.2 Preservation of Tax and Accounting Treatment.............. 29
10.3 Subordination of Notes.................................... 30
10.4 Preparation and Filing of Tax Returns..................... 30
10.5 Covenantsof theCompany Concerning Termination of S Election31
10.6 Post-Closing Adjustments.................................. 34
11. INDEMNIFICATION.................................................... 35
11.1 WRI Losses................................................ 35
11.2 Environmental Indemnity................................... 36
11.3 Employee Compensation and Benefits........................ 37
11.4 Shareholder Losses........................................ 38
11.5 Indemnification for Certain Tax Matters................... 38
11.6 Notice of Loss............................................ 39
11.7 Right to Defend........................................... 39
11.8 Cooperation............................................... 40
11.9 Limitations of Indemnification; Proportionate Payments.... 40
11.10 SurvivalofCovenants,Agreements,RepresentationsandWarranties41
11.11 Exclusive Remedy.......................................... 41
3
12. SECURITIES ACT REPRESENTATIONS AND TRANSFER
RESTRICTIONS....................................................... 42
13. GENERAL............................................................ 42
13.1 Cooperation............................................... 42
13.2 Transactions in Old Asset Purchase Agreement.............. 42
13.3 Successors and Assigns.................................... 43
13.4 Entire Agreement.......................................... 43
13.5 Counterparts.............................................. 43
13.6 Brokers and Agents........................................ 43
13.7 Expenses.................................................. 43
13.8 Notices................................................... 44
13.9 Governing Law............................................. 45
13.10 Use of Certain Terms...................................... 46
13.11 Modification and Waiver................................... 46
13.12 Exercise of Rights and Remedies........................... 46
13.13 Time...................................................... 46
13.14 Reformation and Severability.............................. 46
13.15 Remedies Cumulative....................................... 46
13.16 Captions.................................................. 46
13.17 Tax Structure............................................. 46
4
SCHEDULES
1.3(d) Officers of the Surviving Corporation
5.2 Jurisdictions of Qualification and Company Charter Documents
5.3 Capital Stock
5.5 Contingent Liabilities
5.6 Permits and Licenses
5.7 Taxes
5.8 Contracts
5.10 Consents
5.11 Litigation
5.13 Employee Benefit Plans
5.14 Insurance
5.15 Officers and Directors
5.16 Bank Accounts
5.17 Absence of Certain Changes
5.18 Liens on Stock
7.6 WRI Capital Stock
7.8 WRI Compliance with Laws
13.7 Brokers and Agents
5
ANNEXES
I Shareholders
II Aggregate Consideration to be paid to the Shareholders and Sellers
under the Asset Purchase Agreement
III Convertible Subordinated Notes
IV WRI Charter Documents
V Employment Agreement
VI New Asset Purchase Agreement
VII Shareholder Release
VIII Pledge Agreement
IX Mortgage
X Non-Recourse Secured Guaranty
XI Guaranties
XII Escrow Agreement
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the 30th day of September, 1996, by and among WASTE RECOVERY, INC., a Texas
corporation ("WRI"), NEW U.S. TIRE RECYCLING CORP., a Texas corporation
("Newco"), U.S. TIRE RECYCLING PARTNERS, L.P., a Delaware limited partnership
(the "Partnership"), ▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇ CAPITAL HOLDINGS, INC., a Delaware
corporation ("BG"), TIRUS, INC., a New York corporation ("Tirus") (Tirus and BG,
collectively, the "Company"), ENVIRONMENTAL VENTURE FUND, L.P., a Delaware
limited partnership ("Venture #1"), ARGENTUM CAPITAL, L.P., a Delaware limited
partnership ("Venture #2"), TIRUS ASSOCIATES, L.L.C., a New York limited
liability company comprised of Tirus, Venture #1 and Venture #2 ("Tirus LP"),
and the shareholders listed on Annex I hereto (each such party listed on Annex
I, a "Shareholder" and collectively the "Shareholders"). The Shareholders
constitute all of the Shareholders of Tirus and BG, and the shareholders of
Tirus are hereinafter sometimes referred to as the "Tirus Shareholders" and the
shareholders of BG are hereinafter sometimes referred to as the "BG
Shareholders".
WHEREAS, Newco is a corporation duly organized and existing under the laws
of the State of Texas, having been incorporated on September 18, 1996, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of WRI, a corporation organized and existing under the
laws of the State of Texas;
WHEREAS, each of the Partnership, U.S. Tire Recycling Corp., a Delaware
corporation ("GP"), Newco and WRI have previously entered into that certain
Asset Purchase Agreement dated as of September 30, 1996 (the "Old Asset Purchase
Agreement") and have made certain representations, warranties and covenants
thereunder;
WHEREAS, each of the parties to the Old Asset Purchase Agreement and the
parties to this Agreement have determined that it is advisable and in the best
interests of the parties to effect the transactions described in this Agreement
and not the transactions described in the Old Asset Purchase Agreement;
WHEREAS, the Old Asset Purchase Agreement shall survive to the extent, and
only to the extent, that the Old Asset Purchase Agreement is incorporated
herein;
WHEREAS, the respective Boards of Directors of WRI, Newco, Tirus and BG,
and the boards of directors of the general partners of Venture #1 and Venture #2
(which together are hereinafter collectively referred to as "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective shareholders that (i) each of Tirus and BG
merge with and into Newco pursuant to this Agreement and the applicable
provisions of the laws of the States of New York, Delaware and Texas, and (ii)
WRI purchase and assign to Newco certain of the assets of Venture #1 and Venture
#2 pursuant to that certain Asset Purchase Agreement attached hereto as Annex
VII (the "New Asset Purchase Agreement"), such transactions as described in (i)
and (ii) sometimes being herein called the "Merger";
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WHEREAS, the Boards of Directors of WRI, Newco, Tirus and BG, and the
boards of directors of the general partners of Venture #1 and Venture #2 have
approved and adopted this Agreement and intend the transactions with respect to
each of Tirus and BG to qualify as partially tax-free transfers of property
under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of
1986, as amended (the "Code");
NOW, THEREFORE, for and in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. THE MERGER
1.1 Delivery and Filing of Certificate of Merger. Each of Newco, Tirus and BG
will cause Articles of Merger with respect to the Merger (the "Articles of
Merger") to be signed, verified and delivered to the Secretary of State of the
State of Texas and, if required, a similar filing to be made with the relevant
authorities in the States of Delaware and New York, on or before the Closing
Date (as defined in Section 4).
1.2 Effective Time of the Merger. The "Effective Time of the Merger" shall be
the date and time of the filing of the Articles of Merger with the Texas
Secretary of State. At the Effective Time of the Merger, each of Tirus and BG
shall be merged with and into Newco in accordance with this Agreement, the
Articles of Merger and Texas, Delaware and New York law, the separate existence
of each of Tirus and BG shall cease, and the corporate name of Newco shall be
New U.S. Tire Recycling Corp. Newco shall be the surviving party in the Merger
and is hereinafter sometimes referred to as the "Surviving Corporation." The
Merger will be effected in a single transaction.
1.3 Articles of Incorporation, By-laws and Board of Directors of Surviving
Corporation. At the Effective Time of the Merger:
(a) The Articles of Incorporation of Newco then in effect shall become the
Articles of Incorporation of the Surviving Corporation; and subsequent to the
Effective Time of the Merger, such Articles of Incorporation shall be the
Articles of Incorporation of the Surviving Corporation until changed as provided
by law;
(b) The By-laws of Newco then in effect shall become the By-laws of the
Surviving Corporation; and subsequent to the Effective Time of the Merger, such
By- laws shall be the By-laws of the Surviving Corporation until they shall
thereafter be duly amended;
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(c) The Board of Directors of the Surviving Corporation shall consist of
the following persons:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
The Board of Directors of the Surviving Corporation shall hold office subject to
the provisions of the laws of the State of Texas and of the Certificate of
Incorporation and By-laws of the Surviving Corporation.
(d) The officers of the Surviving Corporation shall be the persons set
forth on Schedule 1.3(d) hereto, each of such officers to serve, subject to the
provisions of the Articles of Incorporation and By-laws of the Surviving
Corporation and the terms of any employment agreement executed by any such
officer, until such officer's successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of Tirus, BG, WRI and
Newco. The respective designations and numbers of outstanding shares and voting
rights of each class of outstanding capital stock of Tirus, BG, WRI and Newco as
of the date of this Agreement are as follows:
(a) As of the date of this Agreement, the authorized capital stock of Tirus
consists of two hundred (200) shares of Common Stock, no par value per share
(the "Tirus Stock"), of which one hundred (100) shares are issued and
outstanding;
(b) As of the date of this Agreement, the authorized capital stock of BG
consists of two hundred (200) shares of Common Stock, no par value per share
(the "BG Stock"), of which two hundred (200) shares are issued and outstanding;
(c) As of September 30, 1996, the authorized capital stock of WRI consists
of the outstanding shares of capital stock set forth on Schedule 4.4 to the Old
Asset Purchase Agreement; and
(d) As of the date of this Agreement, the authorized capital stock of Newco
consists of ten thousand (10,000) shares of Common Stock, $.01 par value per
share (the "Newco Stock"), of which one thousand (1,000) shares are issued and
outstanding.
9
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the Texas
Business Corporation Act (the "TBCA"). Except as herein specifically set forth,
the identity, existence, purposes, powers, objects, franchises, privileges,
rights and immunities of Tirus and of BG shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
Tirus and of BG shall be merged with and into Newco, and Newco, as the Surviving
Corporation, shall be fully vested therewith. At the Effective Time of the
Merger, the separate existence of Tirus and of BG shall cease and, in accordance
with the terms of this Agreement, the Surviving Corporation shall possess all
the rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, all taxes, including those
due and owing and those accrued, and all other choses in action, and all and
every other interest of or belonging to or due to Tirus and to BG and Newco
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of Tirus, BG and Newco; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in Tirus, BG and Newco, shall not revert or
be in any way impaired by reason of the Merger. The Surviving Corporation shall
thenceforth be responsible and liable for all the liabilities and obligations of
Tirus and of BG and Newco and any claim existing, or action or proceeding
pending, by or against Tirus, BG or Newco may be prosecuted as if the Merger had
not taken place, or the Surviving Corporation may be substituted in their place.
Neither the rights of creditors nor any liens upon the property of Tirus and of
BG or Newco shall be impaired by the Merger, and all debts, liabilities and
duties of Tirus and of BG and Newco shall attach to the Surviving Corporation,
and may be enforced against such Surviving Corporation to the same extent as if
said debts, liabilities and duties had been incurred or contracted by such
Surviving Corporation.
1.6 Old Asset Purchase Agreement. Except as otherwise expressly incorporated
herein, the Old Asset Agreement and the schedules and exhibits thereto shall be
deemed superseded and of no force or effect upon the execution and closing of
the transactions contemplated by this Agreement.
2. CONVERSION OF STOCK
2.1 Manner of Conversion.The manner of converting the shares of (a)Tirus Stock,
(b) BG Stock and (c) Newco Stock, issued and outstanding immediately prior to
the Effective Time of the Merger, respectively, into (i) shares of Common Stock,
no par value per share, of WRI (the "WRI Stock"), and (ii) shares of Common
Stock, $.01 par value per share, of the Surviving Corporation (the "Common
Stock"), shall be as follows:
10
As of the Effective Time of the Merger:
(a) All of the shares of Tirus Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (i) that number of shares of
WRI Stock set forth on Annex II attached hereto and (ii) the right to
receive the original principal amount of Convertible Subordinated Notes
to be issued by WRI (the "Notes") set forth on Annex II attached
hereto, such shares of WRI Stock and Notes to be distributed to the
Shareholders as provided in Annex II hereto;
(b) All of the shares of BG Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any action on the part of the holder thereof,
automatically shall be deemed to represent (i) that number of shares of
WRI Stock set forth on Annex II attached hereto and (ii) the right to
receive the original principal amount of Notes set forth on Annex II
attached hereto, such shares of WRI Stock and Notes to be distributed
to the Shareholders as provided in Annex II hereto;
(c) All shares of Tirus Stock that are held by Tirus as
treasury stock shall be cancelled and retired and no shares of WRI
Stock or other consideration shall be delivered or paid in exchange
therefor;
(d) All shares of BG Stock that are held by BG as treasury
stock shall be cancelled and retired and no shares of WRI Stock or
other consideration shall be delivered or paid in exchange therefor;
and
(e) Each share of Newco Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue
of the Merger and without any action on the part of WRI, automatically
be converted into one fully paid and non-assessable share of Common
Stock that shall constitute all of the issued and outstanding shares of
Common Stock immediately after the Effective Time of the Merger.
All WRI Stock received by the Shareholders as of the Effective Time of
the Merger shall, except as described in Section 12 hereof, have the same rights
and attributes as all of the other shares of outstanding WRI Stock. All voting
rights of such WRI Stock received by the Shareholders shall be fully exercisable
by the Shareholders and the Shareholders shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, except as to the
7% Cumulative Preferred Stock of WRI, WRI shall have no class of capital stock
issued and outstanding which, as a class, shall have any rights or preferences
senior to the shares of WRI Stock received by the Shareholders, including,
without
11
limitation, any rights or preferences as to dividends or as to the assets of WRI
upon liquidation or dissolution or as to voting rights.
2.2 Earnings Treatment. All earnings and cash flow of the Company for the period
from October 1, 1996 (the "Effective Date") through the Effective Time of the
Merger shall be for the benefit of Newco and conveyed to Newco at the Closing.
3. DELIVERY OF SHARES
3.1 Delivery Procedure. As of the Effective Time of the Merger and at the
Closing:
(a) The Shareholders, as the holders of all outstanding certificates
representing shares of Tirus Stock and BG Stock, shall, upon surrender of such
certificates, be entitled to receive the number of shares of WRI Stock and the
original principal amount of Notes calculated pursuant to Section 2 above; and
(b) Until the certificates representing Tirus Stock and BG Stock have been
surrendered by the Shareholders and replaced by the WRI Stock, the certificates
for Tirus Stock and BG Stock shall, for all corporate purposes be deemed to
evidence the ownership of the number of shares of WRI Stock and/or Notes that
such Shareholders are entitled to receive as a result of the Merger, as set
forth in Section 2 above and Annex II hereto, notwithstanding the number of
shares of Tirus and BG such certificates represent.
4. CLOSING
Simultaneous with the Closing (as defined below) the transfer of
certain assets of Venture #1 and Venture #2 to WRI pursuant to the New Asset
Purchase Agreement shall occur. On the Closing Date, the parties shall take all
actions necessary (i) to effect the Merger (including the filing with the
appropriate state authorities of the Articles of Merger) and (ii) to effect the
conversion and delivery of shares referred to in Section 3 hereof (hereinafter
referred to as the "Closing"). The Closing shall take place at the offices of
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
on a date agreed upon by the parties and all other closing conditions set forth
herein have been satisfied or waived by the appropriate parties. The date on
which the Closing shall occur shall be referred to as the "Closing Date." On the
Closing Date, the Articles of Merger shall be filed with the Texas Secretary of
State and the Delaware Secretary of State (and a copy thereof certified by the
Texas Secretary of State filed with the New York Secretary of State as soon as
practicable thereafter, together with all other documents required by applicable
law), or if already filed shall become effective, and all transactions
contemplated by this Agreement, including the conversion and delivery of shares
12
of WRI Stock and the delivery of Notes equal to the aggregate portion of the
consideration in such form that the Shareholders shall be entitled to receive
pursuant to the Merger referred to in Sections 2 and 3 hereof, shall occur and
be deemed to be completed.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
(A) Representations and Warranties of the Company and the Shareholdersreholders
Each of Tirus and the Tirus Shareholders, jointly and severally, represent
and warrant that all of the following representations and warranties with
respect to Tirus and its business and operations set forth in this Section 5(A)
are true and correct at the date of this Agreement and shall be true and correct
at the time of the Closing, and each of BG and the BG Shareholders, jointly and
severally, represent and warrant that all of the following representations and
warranties with respect to BG and its business and operations set forth in this
Section 5(A) are true and correct at the time of the Closing. Accordingly,
unless the context clearly requires otherwise, references to the Company, the
Shareholders and the Company Stock in this Section 5 and otherwise in this
Agreement shall mean Tirus, the Tirus Shareholders and the Tirus Stock with
respect to the representations, warranties, covenants and undertakings made by
Tirus and the Tirus Shareholders, and shall mean BG, the BG Shareholders and the
BG Stock with respect to the representations, warranties, covenants and
undertakings made by BG and the BG Shareholders.
5.1 Authorization.This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding obligation of each such party,
enforceable in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally, (ii) the remedy of specific performance
and injunctive relief are subject to certain equitable defenses and to the
discretion of the court before which any proceedings may be brought and (iii)
rights to indemnification hereunder may be limited under applicable securities
laws (the "Equitable Exceptions"). The Company has full corporate power,
capacity and authority to execute this Agreement, the Articles of Merger (to the
extent such entity is a party to the Merger) and all other agreements and
documents contemplated hereby.
5.2 Organization, Existence and Good Standing of the Company. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation with all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is qualified or licensed as a foreign
corporation in each jurisdiction where the character or location of the property
owned, leased or operated by it or the nature of the business conducted by it
makes any such qualification or licensing necessary, except where the failure to
be so duly qualified or licensed would not have a material adverse effect on the
business,
13
operations, properties, assets or conditions (financial or otherwise)
of the Company (a "Material Adverse Effect"). Set forth on Schedule 5.2 is a
list of the jurisdictions, if any, in which the Company is qualified or licensed
to do business as a foreign corporation. True, complete and correct copies of
the Certificate of Incorporation of the Company certified by the Secretary of
State of the applicable state of incorporation as of the date not more than
twenty (20) days prior to the Closing and of the By-laws of the Company are all
attached hereto on Schedule 5.2 (the "Charter Documents"). Except as set forth
on Schedule 5.2, the minute books containing records of the actions and meetings
of the Board of Directors and the shareholders of the Company as heretofore made
available to WRI, are correct and complete in all material respects.
5.3 Capital Stock of the Company.
(a) The Company's authorized capital stock is as set forth in Section
1.4(a) or 1.4(b), as applicable. All of the Company Stock has been validly
issued and is fully paid and nonassessable and no holder thereof is entitled to
any preemptive rights. Each of the Shareholders received the shares held thereby
upon the Company's original issuance thereof following its incorporation and
there have been no subsequent issuances by the Company of any shares of its
capital stock. There are no outstanding conversion or exchange rights,
subscriptions, options, warrants or other arrangements or commitments obligating
the Company to issue any shares of capital stock or other securities or to
purchase, redeem or otherwise acquire any shares of capital stock or other
securities, or to pay any dividend or make any distribution in respect thereof,
except as set forth on Schedule 5.3.
(b) The Shareholders (i) own of record and beneficially (subject to the
community property interest of any Shareholder's spouse) and have good and
marketable title to all of the issued and outstanding shares of the Company
Stock, free and clear of any and all liens, mortgages, security interests,
encumbrances, pledges, charges, adverse claims, options, rights or restrictions
of any character whatsoever other than standard state and federal securities law
private offering legends and restrictions (collectively, "Liens"), and (ii) have
the right to vote the Company Stock on any matters as to which any shares of the
Company Common Stock are entitled to be voted under the laws of the state of
incorporation of the Company and the Company's Certificate of Incorporation and
By-laws, free of any right of any other person.
5.4 Subsidiaries. Except for the interest of Tirus in Tirus LP and GP and
of BG in the Partnership and GP, the Company does not presently own, of record
or beneficially, or control directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
corporation, association or business entity nor is the
14
Company, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
5.5 Financial Statements.
(a) The Company has previously furnished to WRI and Newco its
financial statements as of December 31, 1995 and the related statements
of operations, shareholders' equity and cash flows for the three (3)
fiscal years then ended, together with management's statements of
operations and shareholders' equity for the six-month period ended June
30, 1996 (the "Financial Statements"). The Financial Statements present
fairly the financial position and results of operations of the Company
as of the indicated dates and for the indicated periods.
(b) Except to the extent (and not in excess of the amounts)
reflected in the Financial Statements or as disclosed on Schedule 5.5,
the Company has no liabilities or obligations (including, without
limitation, Taxes (as defined in Section 5.7) payable and deferred
Taxes and interest accrued since June 30, 1996) required to be
reflected in the Financial Statements (or the notes thereto) other than
current liabilities incurred in the ordinary course of business,
consistent with past practice, subsequent to December 31, 1995. The
Company has also delivered to WRI on Schedule 5.5, in the case of those
liabilities that are contingent, a reasonable estimate of the maximum
amount that may be payable. For each such contingent liability, the
Company has provided to WRI the following information:
(i) A summary description of the liability together with the
following:
(A) Copies of all relevant documentation relating thereto;
(B) Amounts claimed and any other action or relief sought; and
(C) Name of claimant and all other parties to the claim, suit or
proceeding;
(ii) The name of each court or agency before which such claim, suit or
proceeding is pending;
(iii) The date such claim, suit or proceeding was instituted; and
(iv) A reasonable best estimate by the Company of the maximum amount,
if any, which is likely to become payable with respect to each such
15
liability. If no estimate is provided, the Company's best estimate shall
for purposes of this Agreement be deemed to be zero.
5.6 Permits and Intangibles. The Company holds all licenses, franchises,
permits and other governmental authorizations, including permits, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, franchises, certificates, trademarks trade names, patents, patent
applications and copyrights owned or held by the Company, the absence of any of
which would have a Material Adverse Effect. An accurate list and summary
description is set forth on Schedule 5.6 hereto of all such licenses,
franchises, permits and other governmental authorizations. The licenses,
franchises, permits and other governmental authorizations listed on Schedule 5.6
are valid, and the Company has not received any notice that any governmental
authority intends to cancel, terminate or not renew any such license, franchise,
permit or other governmental authorization. The Company has conducted and is
conducting its business in compliance with the requirements, standards, criteria
and conditions set forth in such permits, licenses, franchises and governmental
authorizations and is not in violation of any of the foregoing except where such
noncompliance or violation would not have a Material Adverse Effect. Except as
specifically provided on Schedule 5.6, the transactions contemplated by this
Agreement will not result in a default under or a breach or violation of, or
adversely affect the rights and benefits afforded to the Company by, any such
licenses, franchises, permits and governmental authorizations.
5.7 Tax Matters. Matters
(a) The Company has filed all income tax returns required to
be filed by the Company and all returns of other Taxes (as defined
below) required to be filed and has paid or provided for all Taxes
shown to be due on such returns and to the best knowledge of the
Shareholders and the Company, all such returns are accurate and correct
in all respects. Except as set forth on Schedule 5.7, (i) no action or
proceeding for the assessment or collection of any Taxes is pending
against the Company, (ii) no deficiency, assessment or other formal
claim for any Taxes has been asserted or made against the Company that
has not been fully paid or finally settled; and (iii) no issue has been
formally raised by any taxing authority in connection with an audit or
examination of any return of Taxes. No Federal, state or foreign income
tax returns of the Company have been examined, and there are no
outstanding agreements or waivers extending the applicable statutory
periods of limitation for such Taxes for any period. All Taxes that the
Company has been required to collect or withhold through the date
hereof have been duly withheld or collected and, to the extent
required, have been paid to the proper taxing authority. No Taxes will
be assessed on or after the Closing Date against the Company for any
tax period ending on or prior to the Closing Date, other than for Taxes
disclosed on Schedule 5.7. For purposes of this Agreement, "Taxes"
shall mean all taxes, charges, fees, levies or
16
other assessments including, without limitation, income, excise,
property, withholding, sales and franchise taxes, imposed by the
United States, or any state, county, local or foreign government
or subdivision or agency thereof, and including any interest,
penalties or additions attributable thereto.
(b) The Company is not a party to any Tax allocation or sharing
agreement.
(c) To the best knowledge of the Shareholders and the Company,
none of the assets of the Company constitutes tax-exempt bond financed
property or tax-exempt use property, within the meaning of Section 168
of the Code. To the best knowledge of the Shareholders and the
Company, the Company is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Code as in
effect prior to the Tax Reform Act of 1986, or to any "long-term
contract" within the meaning of Section 460 of the Code.
(d) At the Closing Date, the Company will hold at least ninety
percent (90%) of the fair market value of its net assets and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Closing Date. For purposes of making this
representation, amounts paid by the Company to pay reorganization
expenses and all redemptions and distributions in anticipation of or as
part of the plan of reorganization by the Company will be included as
assets of the Company immediately prior to the Effective Time of the
Merger.
(e) At the Closing Date, the Company will not have outstanding
any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in the Company
that, if exercised or converted, would affect WRI's acquisition or
retention of ownership of more than eighty percent (80%) of the total
combined voting power of all classes of the Company Stock and more
than eighty percent (80%) of the total number of shares of each class
of Company non-voting stock.
(f) The Company is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(g) The fair market value of the assets of the Company exceeds
the sum of its liabilities, plus the amount of liabilities, if any, to
which the assets are subject.
(h) The Company is not under jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
17
(i) The liabilities of the Company to be assumed by Newco and the
liabilities to which the transferred assets are subject were incurred
by the Company in the ordinary course of its trade or business.
(j) To the best knowledge of the Company and the Shareholders,
the fair market value of the WRI stock and other consideration
received by the Shareholders, will be approximately equal to the fair
market value of the Company Stock surrendered in the Merger.
(k) To the best knowledge of the Company and the Shareholders,
there is no plan or intention by the Shareholders to sell, exchange,
or otherwise dispose of any of the number of shares of WRI Stock
received by such Shareholders in the Merger as of the Effective Time
of the Merger that would reduce the Shareholders' ownership of WRI
Stock in the aggregate to a number of shares having a value, as of the
Effective Time of the Merger, of less than forty percent (40%) of the
value of all of the formerly outstanding Company Stock as of the
Effective Time of the Merger. For purposes of this representation,
shares of the Company Stock exchanged for cash or other property and
shares of the Company Stock exchanged for cash in lieu of fractional
shares of WRI Stock will be treated as outstanding shares of the
Company Stock on the date of the transaction. Moreover, shares of the
Company Stock and shares of WRI stock held by the Shareholders and
otherwise sold, redeemed, or disposed of prior to or subsequent to the
Closing Date will be considered in making this representation. In
addition, there is no plan or intention by any Shareholders to sell,
exchange or otherwise dispose of WRI Stock, if any, received by such
Shareholders pursuant to Section 11.9.
(l) The Company and the Shareholders will each pay their
respective expenses, if any, incurred in connection with the Merger.
(m) There is no intercorporate indebtedness existing between WRI
and the Company or between Newco and the Company that was issued,
acquired, or be settled at a discount.
(n) None of the shares of WRI Stock received by the Shareholders
in the Merger will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to each of the
Shareholders in his capacity as an employee, including but not limited
to amounts paid pursuant to the Employment Agreement described in
Section 8.4, will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's-length for similar services.
18
(o) Each of BG and Tirus made a valid election under Section
1362(a) of the Code to be taxed in accordance with the provisions of
Subchapter S of the Code for its initial tax year beginning October
31, 1991 and March 31, 1992, respectively, and ending December 31,
1991 and December 31, 1992, respectively (the "S Election"). The
Shareholders acknowledge that the Merger will terminate the Company's
S Election pursuant to Section 1362(d)(2) of the Code. The Company has
qualified as and has properly reported its operations as an S
Corporation within the meaning of Subchapter S of the Code and the
corresponding provisions of the laws of the state in which it is
subject to tax, if any, since the inception of its corporate
existence; since the effective date of the S Election (the "Effective
Date") all tax years of the Company (other than the tax year to end
with the termination of the Company's S Election in connection with
the consummation of the transactions contemplated by this Agreement)
have ended on December 31; since the Effective Date the Shareholders
listed on the Form 2553 have been the only Shareholders of the
Company, all such Shareholders have been United States citizens and no
bankruptcy proceeding has been instituted by or directly involved any
Shareholder; on each period commencing with the Effective Date and
ending upon the Closing each Shareholder owned his or her shares of
Company Stock as separate property; and the only class of stock that
has been outstanding since the Effective Date is the Company Stock.
(p) To the best knowledge of the Shareholders and the Company,
the Company is not a consenting corporation within the meaning of
Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of the Company are subject to an
election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(q) There are no accounting method changes of the Company that
could give rise to an adjustment under Section 481 of the Code for
periods after the Closing Date.
(r) The Company does not have any liability for Taxes for any
Person other than the Company (i) as a transferee or successor, (ii)
by contract or (iii) otherwise.
5.8 Contracts.
(a) Set forth on Schedule 5.8 is a list of all contracts, leases,
arrangements and commitments (whether written or oral) to which the
Company is a party or by which its assets or business are bound
including, without limitation, contracts, agreements, arrangements or
commitments that relate to (i) the employment of any person other than
personnel employed at the pleasure of the Company in the
19
ordinary course of its business at rates of compensation and on
terms consistent with past practice; (ii) collective bargaining
with, or any representation of any employees by, any labor union
or association; (iii) the acquisition of services, supplies,
equipment or other personal property involving more than
$20,000.00 or that is not terminable by the Company upon not more
than sixty (60) days' notice without obligation on the part of
the Company; (iv) the purchase, sale or lease of real property;
(v) distribution, agency or construction; (vi) lease of real or
personal property as lessor or lessee or sublessor or sublessee;
(vii) lending or advancing of funds other than the extension of
credit to trade purchasers in the ordinary course of the
Company's business consistent with past practice; (viii)
borrowing of funds or receipt of credit other than by the Company
in the ordinary course of business consistent with past practice
and except for trade payables in amounts and on terms consistent
with past practice; (ix) incurring of any obligation or liability
except for transactions engaged in by the Company in the ordinary
course of its business consistent with past practice; (x) the
sale of personal property or services under which payments due
after the date of this Agreement exceed $20,000.00; and (xi) any
matter or transaction not in the ordinary course of the business
of the Company or that is inconsistent with the past business
practice of the Company ("Contracts").
(b) Except as set forth on Schedule 5.8, the Company is not in
default in any material respect under any of the Contracts listed on
Schedule 5.8, and such Contracts are legal, valid and binding
obligations of the Company in accordance with their terms and, except
to the extent reflected in Schedule 5.8, have not been amended; and,
except as set forth on Schedule 5.8, no material defenses, offsets or
counterclaims thereto have been asserted by any party thereto other
than the Company nor has the Company waived any substantial rights
thereunder.
5.9 No Violations. The execution, delivery and performance of this
agreement and the other agreements and documents contemplated hereby by the
Company and the Shareholders and the consummation of the transactions
contemplated hereby will not (i) violate any provision of any Charter Document,
(ii) violate any statute, rule, regulation, order or decree of any public body
or authority by which the Company or the Shareholders or its or their respective
properties or assets are bound, the result of which would constitute a Material
Adverse Effect, or (iii) result in a violation or breach of, or constitute a
default under, or result in the creation of any encumbrance upon, or, create any
rights of termination, cancellation or acceleration in any person with respect
to any Contract or any material license, franchise or permit of the Company or
any other agreement, contract, indenture, mortgage or instrument to which the
Company is a party or by which any of its properties or assets is bound, the
result of which would constitute a Material Adverse Effect.
5.10 Consents. Except as set forth on Schedule 5.10, no consent, approval or
other authorization of any governmental authority or under any Contract or,
other agreement or
20
commitment to which the Company or the Shareholders are parties or by which
its or their respective assets are bound is required as a result of or in
connection with the execution or delivery of this Agreement and the other
agreements and documents to be executed by the Company and the Shareholders or
the consummation by the Company and the Shareholders of the transactions
contemplated hereby.
5.11 Litigation and Related Matters. Set forth on Schedule 5.11 is a list of
all actions, suits, proceedings, investigations or grievances pending against
the Company or the Shareholders or, to the best knowledge of the Company and the
Shareholders, threatened against the Company or the Shareholders, the business
or any property or rights of the Company, at law or in equity, before or by any
arbitration board or panel, court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign ("Agencies"), in each case relating to the Company or the
transactions described herein or that could have a Material Adverse Effect. None
of the actions, suits, proceedings or investigations listed on Schedule 5.11
either (i) results in or, if adversely determined, would have a Material Adverse
Effect or (ii) affects or would, if adversely determined, affect the right or
ability of the Company to carry on its business substantially as now conducted.
Neither the Company nor the Shareholders is subject to any continuing court or
Agency order, writ, injunction or decree applicable specifically to the
Company's business, operations or assets or its employees, nor in default with
respect to any order, writ, injunction or decree of any court or Agency with
respect to its assets, business, operations or employees.
5.12 Compliance with Laws. The Company and the Shareholders are and have
been in compliance with all applicable laws, regulations (including federal,
state and local procurement regulations), orders, judgments and decrees except
where the failure to so comply would not have a Material Adverse Effect.
5.13 Employee Benefit Plans. Any employee benefit plan within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained or contributed to by the Company or any of its Group
Members (as defined below) (collectively, the "Plans") is listed on Schedule
5.13, is in substantial compliance with applicable law and has been administered
and operated in all material respects in accordance with its terms. Each Plan
that is intended to be "qualified" within the meaning of Section 401(a) of the
Code has received a favorable determination letter from the Internal Revenue
Service (the "IRS") and no event has occurred and no condition exists that could
be expected to result in the revocation of any such determination. No event that
constitutes a "reportable event" (within the meaning of Section 4043(b) of
ERISA) for which the 30-day notice requirement has not been waived by the
Pension Benefit Guaranty Corporation (the "PBGC") has occurred with respect to
any Plan. No Plan is subject to Title IV of ERISA, and neither the Company nor
any Group Member has made any contributions to or participated in any "multiple
employer plan" (within the meaning of the Code or
21
ERISA) or "multi-employerplan" (as defined in Section 4001(a)(3) of ERISA). Full
payment has been made of all amounts that the Company was required under the
terms of the Plans to have paid as contributions to such Plans on or prior to
the date hereof (excluding any amounts not yet due) and all amounts properly
accrued to date as liabilities of the Company that have not been paid have been
properly recorded on the Financial Statements, and no Plan that is subject to
Part 3 of Subtitle B of Title 1 of ERISA has incurred any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of the
Code), whether or not waived. The Company and, to the knowledge of the Company
and the Shareholders, no other "disqualified person" or "party in interest"
(within the meaning of Section 4975(e)(2) of the Code and Section 3(14) of
ERISA, respectively) has engaged in any transactions in connection with any Plan
that could be expected to result in the imposition of a material penalty
pursuant to Section 502(i) of ERISA, damages pursuant to Section 409 of ERISA or
a tax pursuant to Section 4975(a) of the Code. No material claim, action,
proceeding, or litigation has been made, commenced or, to the knowledge of the
Company and the Shareholders, threatened with respect to any Plan (other than
for benefits payable in the ordinary course and PBGC insurance premiums). No
Plan or related trust owns any securities in violation of Section 407 of ERISA.
Neither the Company nor any Group Member has incurred any liability or taken any
action, or has any knowledge of any action or event, that could cause it to
incur any liability (i) under Section 412 of the Code or Title IV of ERISA with
respect to any "single employer plan" (within the meaning of Section 4001(a)(15)
of ERISA), (ii) on account of a partial or complete withdrawal (within the
meaning of Section 4205 and 4203 of ERISA, respectively) with respect to any
"multi-employer plan" (within the meaning of Section 3(37) of ERISA), (iii) on
account of unpaid contributions to any such multi-employer plan, or (iv) to
provide health benefits or other non-pension benefits to retired or former
employees, except as specifically required by Section 4980B(f) of the Code.
Except as set forth on Schedule 5.13, (i) no current or former employee of the
Company is entitled to severance pay, unemployment compensation or any similar
payment, (ii) no compensation is due to any former employee and (iii) no payment
is to be made to or on behalf of any person that would constitute a "parachute
payment" (within the meaning of Section 280G of the Code), and neither the
execution and delivery of this Agreement by the Company or the consummation of
the transactions contemplated hereby will (A) entitle any current or former
employee of the Company to severance pay, unemployment compensation or any
similar payment, (B) accelerate the time of payment or vesting, or increase the
amount of, any compensation due to any such employee or former employee, or (C)
directly or indirectly result in any payment made or to be made to or on behalf
of any person to constitute a "parachute payment" (within the meaning of Section
280G of the Code). For purposes of this Agreement, "Group Member" shall mean any
member of any "affiliated service group" as defined in Section 414(m) of the
Code that includes the Company, any member of any "controlled group of
corporations" as defined in Section 1563 of the Code that includes the Company
or any member of any group of "trades or businesses under common control" as
defined by Section 414(c) of the Code that includes the Company.
22
5.14 Insurance. Schedule 5.14 contains an accurate list of the policies and
contracts (including insurer, named insured, type of coverage, limits of
insurance, required deductibles or co-payments, annual premiums and expiration
date) for fire, casualty, liability and other forms of insurance maintained by,
or for the benefit of, the Company. All such policies are in full force and
effect and shall remain in full force and effect through the Closing Date and
are adequate for the business engaged in by the Company. Neither the Company nor
the Shareholders have received any notice of cancellation or non-renewal or of
significant premium increases with respect to any such policy. Except as
disclosed on Schedule 5.14, no claims pending made by or on behalf of the
Company under such policies have been denied or are being defended against third
parties under a reservation of rights by an insurer thereof. All premiums due
prior to the date of this Agreement and the Closing Date for periods prior to
the date of this Agreement and the Closing Date with respect to such policies
have been timely paid.
5.15 Officers and Directors. Set forth on Schedule 5.15 is a list of the
current officers and directors of the Company.
5.16 Bank Accounts and Powers of Attorney. Schedule 5.16 sets forth each
bank, savings institution and other financial institution with which the Company
has an account or safe deposit box and the names of all persons authorized to
draw thereon or to have access thereto. Each person holding a power of attorney
or similar grant of authority on behalf of the Company is identified on Schedule
5.16. Except as disclosed on such Schedule, the Company has not given any
revocable or irrevocable powers of attorney to any person, firm, corporation or
organization relating to its business for any purpose whatsoever.
5.17 Absence of Certain Changes or Events. Except as set forth on Schedule
5.17 or as otherwise contemplated by this Agreement, since December 31, 1995,
there has not been (a) any damage, destruction or casualty loss to the physical
properties of the Company (whether or not covered by insurance) other than
ordinary wear and tear, (b) any event or circumstance that would have a Material
Adverse Effect, (c) any entry into any transaction, commitment or agreement
(including, without limitation, any borrowing) material to the Company, except
transactions, commitments or agreements in the ordinary course of business
consistent with past practice, (d) any declaration, setting aside or payment of
any dividend or other distribution in cash, stock or property with respect to
the capital stock or other securities of the Company, any repurchase, redemption
or other acquisition by the Company of any capital stock or other securities, or
any agreement, arrangement or commitment by the Company to do so, (e) any
increase that is material in the compensation payable or to become payable by
the Company to its directors, officers, employee or agents or any increase in
the rate or terms of any bonus, pension or other employee benefit plan, payment
or arrangement made to, for or with any such directors, officers, employees or
agents, except as set forth on Schedule 5.17 and except for regularly scheduled
bonuses provided for in written employment agreements, (f) any sale, transfer or
other disposition
23
of, or the creation of any Lien upon, any part of the assets of the Company,
tangible or intangible, except for sales of inventory and use of supplies and
collections of accounts receivables in the ordinary course of business
consistent with past practice, or any cancellation or forgiveness of any debts
or claims by the Company, (g) any change in the relations of the Company with or
loss of its customers or suppliers, or any loss of business or increase in the
cost of inventory items or change in the terms offered to customers, that would
have a Material Adverse Effect, or (h) any capital expenditure (including any
capital leases) or commitment therefor by the Company in excess of $10,000.
(B)Representations and Warranties of the Shareholders.
Each Shareholder severally represents and warrants that the
representations and warranties in this Section 5(B) as they apply to him or it
are true and correct as of the date of this Agreement and at the time of the
Closing.
5.18 Authority; Ownership. The Shareholder has the full legal right, power
and authority to enter into this Agreement. The Shareholder owns beneficially
(subject to any community property interest of a spouse) and of record the
shares of the Company Stock set forth opposite such Shareholder's name on Annex
I and such shares of the Company Stock, together with the other shares of the
Company Stock set forth on Annex I, constitutes all of the outstanding shares of
capital stock of the Company, and, except as set forth on Schedule 5.18 hereof,
such shares of the Company Stock owned by the Shareholder are owned free and
clear of all Liens other than standard state and federal securities laws private
offering restrictions. The Shareholder has owned the Company Stock since the
date set forth on Annex I.
5.19 Preemptive Rights. The Shareholder does not have, or hereby waives, any
preemptive or other right to acquire shares of the Company Stock that the
Shareholder has or may have had.
5.20 No Intention to Dispose of WRI Stock. Each Shareholder represents that
there is no current plan or intention by such Shareholder to sell, exchange or
otherwise dispose of any of the shares of WRI Stock received by such Shareholder
in the Merger as of the Effective Time of the Merger or otherwise described in
Annex II. For purposes of this representation, shares of the Company Stock
exchanged for cash or other property and shares of the Company Stock exchanged
for cash in lieu of fractional shares of WRI Stock will be treated as
outstanding shares of the Company Stock on the date of the transaction.
Moreover, shares of the Company Stock and shares of WRI Stock held by the
Shareholder and otherwise sold, redeemed or disposed of prior to or subsequent
to the Closing Date will be considered in making this representation. In
addition, there is no plan or intention by any Shareholders to sell, exchange or
24
otherwise dispose of WRI Stock, if any, received by such Shareholders pursuant
to Section 11.9.
5.21 Validity of Obligations. This Agreement and any other agreements to
which the Shareholder is a party pursuant to the provisions of this Agreement
have each been duly executed and delivered and are the legal, valid and binding
obligations of the Shareholder that is a party thereto, enforceable in
accordance with their respective terms, subject to the Equitable Exceptions.
5.22 No Other Representations. Except to the extent set forth in this
Agreement or expressly incorporated herein, neither the Company nor any
Shareholder has made any representation or warranty whatsoever and hereby
disclaims all liability or responsibility for any other representation or
warranty made, communicated or furnished (orally or in writing) to WRI or Newco
or their representatives (including without limitation, any opinion,
information, projection or advice as may have been or may be provided to WRI or
Newco or any of their affiliates by any partner, director, officer, employee,
agent, consultant or representative of the Company or any Shareholder or any
affiliate thereof).
6. REPRESENTATIONS AND WARRANTIES OF GP AND THE PARTNERSHIP
The Partnership confirms the truth and accuracy of the representations
and warranties made by it in the Old Asset Purchase Agreement and the Company,
on behalf of GP, confirms the truth and accuracy of the representations and
warranties made by GP in the Old Asset Purchase Agreement; provided, however,
that the differences in the transactions contemplated to be effected pursuant to
the Old Asset Purchase Agreement and the transactions to be effected pursuant to
this Agreement shall not be deemed to affect the truth and accuracy of such
representations and warranties.
7. REPRESENTATIONS OF WRI AND NEWCO
WRI and Newco, jointly and severally, represent and warrant that all of
the following representations and warranties in this Section 7 are true and
correct at the date of this Agreement and shall be true and correct at the time
of the Closing.
7.1 Due Organization. Each of WRI and Newco is duly organized, validly
existing and in good standing under the laws of the State of Texas, and is duly
authorized and qualified under all applicable laws, regulations, and ordinances
of public authorities to carry on its businesses in the places and in the manner
as now conducted except for where the failure to be so authorized or qualified
would not have a material adverse effect on its business, operations, affairs,
properties, assets or condition (financial or otherwise). Newco is qualified to
carry on its business in the State of North Carolina.
25
7.2 WRI Stock. The WRI Stock to be delivered to the Shareholders at the
Closing Date shall constitute valid and legally issued shares of WRI, fully paid
and nonassessable, and except as set forth in this Agreement, (a) will be owned
free and clear of all Liens created by WRI or Newco, and (b) except for the fact
that the shares of WRI Stock will not be registered under the Securities Act of
1933, as amended (the "1933 Act") at the Closing, will be legally equivalent in
all respects to the WRI Stock issued and outstanding as of the date hereof. Upon
delivery of the shares of WRI Stock to the Shareholders at the Closing the
Shareholders shall have good and marketable title to such shares.
7.3 Validity of Obligations. The execution and delivery of this Agreement,
the Notes and the New Asset Purchase Agreement and any other agreements annexed
hereto to which WRI or Newco is a party and the performance by each of WRI and
Newco of the transactions contemplated herein or therein have been duly and
validly authorized by the respective Boards of Directors of WRI and Newco, and
this Agreement, the Notes, the New Asset Purchase Agreement and such other
agreements have each been duly and validly authorized by all necessary corporate
action, duly executed and delivered and are the legal, valid and binding
obligations of each of WRI and Newco to the extent that it is a party thereto,
enforceable against such party thereto in accordance with their respective terms
subject to the Equitable Exceptions.
7.4 Corporate Power and Authority. The execution, delivery and performance
of this Agreement by WRI and Newco, and all other agreements by and among the
parties, and the consummation by WRI and Newco of the transactions contemplated
hereby and thereby, have been duly authorized by all requisite corporate action
and no further action or approval is required in order to permit WRI and Newco
to consummate the transactions contemplated hereby and thereby. This Agreement
constitutes, and all other agreements by and among the parties, when executed
and delivered in accordance with the terms thereof, will constitute (assuming
due execution and delivery by the other parties hereto) the legal, valid and
binding obligations of WRI and Newco, enforceable in accordance with their
terms, subject to the Equitable Exceptions. Each of WRI and Newco has full
power, authority and legal right to enter into this Agreement and all other
agreements by and among the parties and to consummate the transactions
contemplated hereby and thereby. The making and performance of this Agreement,
and all other agreements by and among the parties, and the consummation of the
transactions contemplated hereby and thereby in accordance with the terms hereof
and thereof will not (i) conflict with the Articles of Incorporation or the
Bylaws of WRI and Newco (collectively, "WRI's Charter Documents"), (ii) result
in any breach or termination of, or constitute a default under, or constitute an
event which with notice or lapse of time, or both, would become a default under,
or result in the creation of any Encumbrance upon any asset of WRI or Newco
under, or create any rights of termination, cancellation or acceleration in any
person under, any Contract, or violate any order, writ, injunction or decree, to
26
which WRI or Newco is a party or by which WRI or Newco or its assets, business
or operations may be bound or affected or under which WRI or Newco or its
assets, business or operations receive benefits, (iii) result in the loss or
adverse modification of any license, franchise, permit or other authorization
granted to or otherwise held by WRI or Newco the loss or adverse modification of
which would be reasonably likely to have a material adverse effect on the
business, operations, properties, assets or condition (financial or otherwise)
of WRI or Newco taken as a whole (a "WRI Material Adverse Effect"), or (iv)
result in the violation of any provisions of law applicable to WRI or Newco, the
violation of which could have a WRI Material Adverse Effect.
7.5 No Conflicts. The execution, delivery and performance of this Agreement
and the other agreements and documents contemplated hereby by WRI and Newco and
the consummation of the transactions contemplated hereby will not (i) violate
any provision of any WRI Charter Document, (ii) violate any statute, rule,
regulation, order or decree of any public body or authority by which WRI or
Newco or its or their respective properties or assets are bound, the result of
which would constitute a WRI Material Adverse Effect, or (iii) result in a
violation or breach of, or constitute a default under, or result in the creation
of any encumbrance upon, or, create any rights of termination, cancellation or
acceleration in any person with respect to any Contract or any material license,
franchise or permit of WRI or any other agreement, contract, indenture, mortgage
or instrument to which WRI is a party or by which any of its properties or
assets is bound, the result of which would constitute a Material Adverse Effect.
7.6 Capitalization of WRI and Ownership of WRI Stock. The authorized and
outstanding capital stock of WRI and Newco is as set forth in Sections 1.4(c)
and 1.4(d) respectively. All issued and outstanding shares of WRI stock are duly
authorized, validly issued, fully paid and nonassessable. There are no
obligations of WRI to repurchase, redeem or otherwise acquire any shares of WRI
capital stock. Except as set forth on Schedule 7.6, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which WRI is a party or by which it is bound obligating WRI to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of WRI or obligating WRI to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. All of the shares of WRI Stock to be issued to
the Shareholders in accordance herewith will be duly authorized, validly issued,
fully paid and nonassessable. The shares of WRI Stock to be delivered pursuant
to the transactions contemplated under this Agreement at the Closing shall
constitute 21.5% of the outstanding Common Stock of WRI on a fully diluted
basis, as determined in accordance with Schedule 4.4 of the Old Asset Purchase
Agreement, and assuming exercise of all outstanding options, warrants, rights,
calls, commitments or agreements relating to the capital stock of WRI.
7.7 Transactions in Capital Stock. There has been no transaction or action
taken with respect to the equity ownership of WRI or Newco in contemplation of
the transactions
27
described in this Agreement that would prevent WRI from accounting for such
transactions on a reorganization accounting basis.
7.8 Conformity with Law and Litigation. Neither WRI nor Newco is in
violation of any law or regulation or any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them that would have a
material adverse effect on the business, operations, affairs, properties, assets
or condition (financial or otherwise) of WRI taken as a whole (an "WRI Material
Adverse Effect"). Except as set forth on Schedule 7.8, there are no claims,
actions, suits or proceedings, pending or, to the knowledge of WRI or Newco,
threatened, against or affecting WRI or Newco, at law or in equity, or before or
by any Agency having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. WRI has conducted and is conducting its business in compliance with
the requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, orders, approvals, variances,
rules and regulations and is not in violation of any of the foregoing that would
have an WRI Material Adverse Effect.
7.9 No Violations. Copies of the Articles of Incorporation and the By-laws
of WRI and Newco (the "WRI Charter Documents") have been previously provided to
the Company; neither WRI nor Newco is (a) in violation of any WRI Charter
Document or (b) in default, under any material lease, instrument, agreement,
license, permit to which it is a party or by which its properties are bound (the
"WRI Material Documents"); and, (i) the rights and benefits of WRI under the WRI
Material Documents will not be materially and adversely affected by the
transactions contemplated hereby and (ii) the execution of this Agreement and
the performance of the obligations hereunder and the consummation of the
transactions contemplated hereby will not result in any material violation or
breach or constitute a default under, any of the terms or provisions of the WRI
Material Documents or the WRI Charter Documents.
7.10 Taxes.
(a) Prior to the Merger, WRI will own all of the outstanding
stock of Newco. At all times prior to the Merger, no person other than
WRI has owned, or will own, any of the outstanding stock of Newco.
(b) The fair market value of the WRI Stock and other
consideration received by the Shareholders will be approximately equal
to the aggregate fair market value of the Company Stock surrendered in
the merger.
(c) (i) Newco was formed by WRI solely for the purpose of
engaging in the transaction contemplated by the Agreement.
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(ii) There were not as of the date of the Agreement
and there will not be at the Closing Date, any outstanding or
authorized options, warrants, convertible securities, calls,
rights, commitments or any other agreements of any character
which Newco is a party to, or may be bound by, requiring it to
issue, transfer, sell, purchase, redeem or acquire any shares
of its capital stock or any securities or rights convertible,
into, exchangeable for, evidencing the right to subscribe for
or acquire, any shares of its capital stock.
(iii) As of the date of this Agreement and the
Closing Date, except for obligations or liabilities incurred
in connection with (A) its incorporation or organization and
(B) the transactions contemplated thereby and in the
Agreement, Newco has not and will not have incurred, directly
or indirectly through any subsidiary, any obligations or
liabilities or engaged in any business or activities of any
type or kind whatsoever or entered into any agreement or
arrangements with any person or entity.
(iv) Prior to the Closing Date, Newco did not own any
asset other than an amount of cash necessary to incorporate
Newco and to pay the expenses of the Merger attributable to
Newco and such assets as were necessary to perform its
obligations under this Agreement.
(v) WRI has no plan or intention to cause the
Surviving Corporation to issue additional shares of its stock
that would result in WRI losing control of the Surviving
Corporation within the meaning of Section 368(c) of the Code.
(d) WRI has no plan or intention to reacquire any of its
stock issued in the Merger.
(e) WRI has no plan or intention to liquidate Newco or merge
Newco with or into another corporation (other than as described in this
Agreement); sell or otherwise dispose of the stock of Newco; or cause
Newco or any of its subsidiaries to sell or otherwise dispose of any of
its assets or of any of the assets acquired from the Company, other
than as contemplated by this Agreement, directly or indirectly, except
for (i) dispositions made in the ordinary course of business, (ii)
transfers of assets to a corporation all of whose outstanding stock is
owned directly by Newco or (iii) transfers of assets by direct or
indirect wholly-owned subsidiaries of Newco to other direct or indirect
wholly-owned subsidiaries of Newco.
(f) Assuming the accuracy of the representation contained in
Section 5.7(i) hereof, any liabilities of the Company assumed by Newco
and any liabilities to which the transferred assets of the Company are
subject were incurred by the Company in the ordinary course of
business.
29
(g) WRI and Newco will each pay their respective expenses, if
any, incurred in connection with the Merger.
(h) There is no intercorporate indebtedness existing between WRI
and the Company or between Newco and the Company that was issued,
acquired, or to be settled, in each event at a discount.
(i) Neither WRI nor Newco is an investment company as defined in
section 368(a)(2)(F)(iii) and (iv) of the Code.
(j) None of the shares of WRI Stock received by the Shareholders
in the Merger will be separate consideration for, or allocable to, any
employment agreement.
(k) The proposed Merger is effected through the laws of the
United States, or a State or the District of Columbia.
(l) The proposed Merger is being undertaken for reasons germane
to the business of the Company.
(m) Assuming the accuracy of the representation contained in
Section 5.7(d) hereof, WRI has no plan or intention to cause the
Surviving Corporation immediately after the Closing Date to hold less
than ninety percent (90%) of the fair market value of its net assets
and seventy percent (70%) of the fair market value of the gross assets
of the Company immediately prior to the Closing Date, with such amount
determined based on the same methodology described in Section 5.7(d).
(n) No stock of Newco will be issued in the transaction.
(o) Following the Merger, Newco will continue the historic
business of the Company or will use a substantial portion of the
Company's business assets in a business.
(p) Newco is not under the jurisdiction of a court in a title 11
or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
7.11 Consents. No consent, approval, authorization or order of any court,
Agency or any other person is required in order to permit WRI or Newco to
consummate the transactions contemplated by this Agreement.
30
7.12 Confirmation of Representations and Warranties in Old Asset Purchase
Agreement. Each of WRI and Newco does hereby confirm the truth and accuracy of
the representations and warranties made by it in the Old Asset Purchase
Agreement and agree that such representations and warranties shall be deemed to
have been made to the parties hereto, whether or not parties to the Old Asset
Purchase Agreement; provided, however, that the differences in the transactions
contemplated to be effected pursuant to the Old Asset Purchase Agreement and in
the transactions to be effected pursuant to this Agreement shall not be deemed
to affect the truth and accuracy of such representations and warranties.
7.13 No Other Representations. Except to the extent set forth in this
Agreement or expressly incorporated herein, WRI and Newco have made no
representation or warranty whatsoever to the Company or the Shareholders and the
other parties hereto and hereby disclaim all liability or responsibility for any
other representation or warranty made, communicated or furnished (orally or in
writing) to the Company and the Shareholders and any other parties hereto or
their representatives (including without limitation, any opinion, information,
projection or advice as may have been or may be provided to the Company and the
Shareholders and the other parties hereto or any of their affiliates by any
director, officer, employee, agent, consultant or representative of WRI or Newco
or any affiliate thereof).
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SHAREHOLDERS AND THE COMPANY
The obligations of the Shareholders and of the Company, the
Partnership, Tirus LP, Venture #1 and Venture #2 with respect to actions to be
taken on the Closing Date are subject to the satisfaction or waiver on or prior
to the Closing Date of all of the following conditions, except that no such
waiver shall be deemed to affect the survival of the representations and
warranties of WRI and Newco contained in Section 7 hereof.
8.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of WRI and Newco contained in this Agreement
shall be true and correct as of the Closing Date as though such representations
and warranties had been made as of that time; and each and all of the terms,
covenants and conditions of this Agreement to be complied with and performed by
WRI and Newco on or before the Closing Date shall have been duly complied with
and performed.
8.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to each of the Company and the
Shareholders, the Partnership, GP, Tirus LP, Venture #1 and Venture #2 and their
respective counsel.
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8.3 No Litigation. No action or proceeding before a court or any other
Agency shall have been instituted or threatened to restrain or prohibit the
merger of Newco with the Company and no Agency shall have taken any other action
or made any request of the Company as a result of which the management of the
Company reasonably deems it inadvisable to proceed with the transactions
hereunder.
8.4 Employment Agreement. WRI shall have executed and delivered to Mr.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ the Employment Agreement in substantially the form attached
hereto as Annex V to the Asset Purchase Agreement (the "Employment Agreement").
8.5 Consents and Approvals. All necessary consents of and filings with any
Agency or any third party relating to the consummation of the transactions
contemplated herein shall have been obtained and made.
8.6 Good Standing Certificates. WRI and Newco each shall have delivered to
the Company a certificate, dated as of a date not more than fifteen (15) days
prior to the Closing Date, duly issued by the Texas Secretary of State and in
each state in which Newco is authorized to do business, showing that each of WRI
and Newco is in good standing and authorized to do business and that all state
franchise and/or income tax returns and taxes for WRI and Newco, respectively,
for all periods prior to the Closing have been filed and paid.
8.7 New Asset Purchase Agreement. WRI shall have executed and delivered to
GP, Venture #1 and Venture #2 the New Asset Purchase Agreement in substantially
the form annexed hereto as Annex VI.
8.8 Pledge Agreement and Mortgage. WRI and Newco shall have executed and
delivered to the Company and the Shareholders the pledge agreement in
substantially the form annexed hereto as Annex VIII (the "Pledge Agreement") and
the mortgage in substantially the form annexed hereto as Annex IX (the
"Mortgage").
8.9 Non-Recourse Secured Guaranty. The Partnership shall have executed and
delivered to the Shareholders the Non-Recourse Secured Guaranty in substantially
the form annexed hereto as Annex X.
8.10 No Material Adverse Change. No event or circumstance shall have
occurred that would constitute an WRI Material Adverse Effect.
32
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF WRI AND NEWCO
The obligations of WRI and Newco with respect to actions to be taken on
the Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions, except that no such waiver
shall be deemed to affect the survival of the representations and warranties of
the Company and the Shareholders in Section 5 hereof or of GP and the
Partnership in Section 6 hereof.
9.1 Representations and Warranties; Performance of Obligations. All of the
representations and warranties of the Shareholders and the Company, GP and the
Partnership contained in this Agreement shall be true and correct as of the
Closing Date as though such representations and warranties had been made as of
that time; and each and all of the terms, covenants and conditions of this
Agreement to be complied with and performed by the Shareholders and the Company,
GP and the Partnership on or before the Closing Date shall have been duly
complied with and performed.
9.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to each of WRI and Newco and
their counsel.
9.3 No Litigation. No action or proceeding before a court or any other
Agency shall have been instituted or threatened to restrain or prohibit the
merger of the Company with and into Newco and no Agency shall have taken any
other action or made any request of WRI as a result of which the management of
WRI or Newco reasonably deems it inadvisable to proceed with the transactions
hereunder.
9.4 Insurance. WRI shall be named as an additional named insured on all
of the insurance policies of the Company.
9.5 Shareholder Releases. Each of the Shareholders shall have delivered to
WRI immediately prior to the Closing Date an instrument dated the Closing Date
in substantially the form of Annex VII releasing the Company from any and all
claims of the Shareholder against the Company and obligations of the Company to
the Shareholder.
9.6 Termination of Related Party Agreements. All existing agreements
between the Company and the Shareholders or business or personal affiliates of
the Company or the Shareholders and all existing bonus and incentive plans and
arrangements of the Company shall have been cancelled or terminated.
9.7 Employment Agreement. Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ shall have executed and delivered
to WRI and Newco the Employment Agreement.
33
9.8 Pledge Agreement and Mortgage. WRI and Newco shall have executed and
delivered to the Shareholders the Pledge Agreement and the Mortgage.
9.9 Due Diligence Investigation. The due diligence investigation of each of
the Company, the Partnership, GP, Tirus LP, Venture #1 and Venture #2 and its
business, operations, properties and assets by WRI and Newco shall have been
completed and the results thereof shall have been reasonably satisfactory in all
respects to each of WRI and Newco.
9.10 Good Standing Certificates. The Company shall have delivered to WRI
certificates, dated as of a date not more than fifteen (15) days prior to the
Closing Date, duly issued by the appropriate governmental authorities showing
that the Company is in good standing and authorized to do business in all
jurisdictions in which it does business and that all state franchise taxes
thereof for all periods prior to the Closing have been paid.
9.11 Conditions in Old Asset Purchase Agreement. The conditions set forth in
Sections 7.4 (No Casualty Losses), 7.10 (Title Insurance) and 7.11 (Proprietary
Information Provided at Closing) of the Old Asset Purchase Agreement shall have
been satisfied or waived.
9.12 Guaranties. WRI and Newco shall have received executed guaranties in the
form annexed hereto as Annex XI (the "Guaranties") from each of ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇.
9.13 Escrow Agreement. The Shareholders and GP shall have executed and delivered
to WRI and Newco the Escrow Agreement with U.S. Trust Company of Texas N.A. as
escrow agent (the "Escrow Agent") in substantially the form annexed hereto as
Annex XII (the "Escrow Agreement").
9.14 No Material Adverse Effect. No event or circumstance shall have occurred
that would constitute a Material Adverse Effect.
10. COVENANTS OF THE PARTIES
10.1 Covenants in Old Asset Purchase Agreement.
(a) Each of WRI and Newco covenants and agrees with the
Shareholders, Venture #1 and Venture #2 that it will effect the
undertakings set forth in Sections 6.3 (Board of Directors of WRI), 6.4
(Operating Committee), 6.5 (Board of Directors of Buyer), 6.7
(Registration of WRI Stock), 6.8 (Issuance of Preferred Stock) (with
any issuance of the WRI Stock pursuant to Section 6.7 to be made in the
proportions in which the $1,850,000 original principal amount of the
Notes are issued as set forth on Annex II hereto), 6.10 (Access to
Books and Records), and 6.11 (Convertible Subordinated Debentures) of
the Old Asset Purchase Agreement pursuant to the direction of the
Shareholders (and with respect to Section 6.7, Venture #1 and Venture
#2), all of which such parties shall be deemed to be the "Seller" as
34
set forth in the foregoing sections. Until the Notes have been paid in
full or otherwise retired, WRI shall remain the sole shareholder of the
Surviving Corporation. WRI and Newco covenant and agree with the
Shareholders, Venture #1 and Venture #2 that for a period of three (3)
years from the Closing, Newco will cause the Partnership to (i)
maintain insurance with reputable insurers with substantially the same
coverage limits and deductibles as existing on the date of the Closing
and (ii) name the Shareholders, Venture #1 and Venture #2 as additional
insureds on such policies and provide appropriate waivers of
subrogation (with any costs incurred in connection with the actions set
forth in clause (ii) to be paid by the Shareholders, Venture #1 and
Venture #2).
(b) Each of the Shareholders covenants and agrees with WRI and
Newco that it will effect the undertakings set forth in Sections 5.5
(Bonds and Letters of Credit) and 5.6 (Operating Plan) of the Old
Asset Purchase Agreement pursuant to the direction of WRI and Newco,
who shall be deemed to be the "Buyer" as set forth in the foregoing
sections.
10.2 Preservation of Tax and Accounting Treatment.After the Closing Date,WRI
shall not and shall not permit any of the WRI Subsidiaries to undertake any act
that would jeopardize the tax-free status of the reorganization of the Company,
including
(a) The retirement or reacquisition, directly or indirectly, of
all or part of the WRI Stock issued in connection with the
transactions contemplated hereby;
(b) The entering into of financial arrangements for the benefit
of the Shareholders in their capacities as such;
(c) The disposition of any material part of the assets of the
Company within the two (2) years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or
excess capacity;
(d) The discontinuance of the historic business of the Company;
and
(e) The issuance of additional shares of Newco stock that would
result in WRI losing control of Newco within the meaning of Section
368(c) of the Code.
Notwithstanding any indication in this Agreement to the contrary, WRI and
the Surviving Corporation may take any and all actions necessary to achieve a
liquidation and dissolution of Tirus LP.
10.3 Subordination of Notes. Newco does hereby covenant and agree that the
indebtedness evidenced by the Notes and any extensions or renewals thereof shall
at all times and in all respects be subordinate to all indebtedness of the
Surviving Corporation for money borrowed whenever created, assumed, incurred or
guaranteed under (i) that certain mortgage securing the payment of that certain
promissory note dated August 20, 1991 in the original principal amount of
$1,000,000.00 made by the Partnership in favor of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Inc.,
(ii) such other bank or unaffiliated financial institution financing that
35
together with the indebtedness under the above-described mortgage does not
exceed $1,000,000.00 from time to time and (iii) terms expressly approved by the
Board of Directors of Newco (herein called "Senior Debt"). Except with respect
to the Senior Debt, the obligations of WRI and the Surviving Corporation under
the Notes are, and the Surviving Corporation hereby covenants that it will take
all action necessary to ensure that the obligations hereunder shall continue to
be, senior to all other obligations of the Surviving Corporation, until the
Notes are repaid in full. Newco covenants that, except for the Senior Debt,
until the Notes are paid in full, it will not create or permit the creation of
any liens, claims or encumbrances with respect to any of its assets.
10.4 Preparation and Filing of Tax Returns.
(a) The Shareholders shall prepare all Tax returns for all
taxable periods ending on or prior to the Closing Date, including
without limitation all Tax returns for the S Short Year. Such Tax
returns shall be prepared on a basis consistent with past practice. WRI
and the Surviving Corporation shall be responsible for the payment of
all amounts (other than income Taxes) due on such Tax returns to the
extent they were reserved for on the Financial Statements. WRI and the
Surviving Corporation shall cooperate with the Shareholders in the
filing of such Tax returns. WRI and the Surviving Corporation shall be
responsible for the preparation of all Tax returns for all taxable
periods ending after the Closing Date, including without limitation all
Tax returns for the C Short Year. WRI and the Surviving Corporation
shall be responsible for the payment of all amounts due on such Tax
returns. The Shareholders shall cooperate in the preparation of such
Tax returns.
(b) The Shareholders shall have responsibility for the conduct
of any audit of any taxable period ending on or prior to the Closing
Date; provided, however, that in the event that the Shareholders
receive notice of a claim from the Internal Revenue Service or any
other taxing authority the Shareholders shall promptly, but in any
event within five (5) business days, notify WRI and Newco of such claim
and of any action taken or proposed to be taken. In the event WRI and
Newco wish to participate in such audit they may do so at their own
cost and expense.
(c) Each of the Company, Newco, WRI and the Shareholders shall
comply with the tax reporting requirements of Section 1.368-3 of the
Treasury Regulations promulgated under the Code, and shall treat the
transaction as a tax-free reorganization under Section 368(a) of the
Code unless otherwise required by law. Each of the foregoing shall
report the value of the shares of WRI Stock received in the Merger in a
manner consistent with the other parties to this Agreement.
36
10.5 Covenants of the Company Concerning Termination of S Election.
(a) Definitions. The following terms, as used herein, have the
following meanings when used hereinafter:
"C Corporation Period" means the period commencing on the S Termination
Date.
"C Short Year" means that portion of the S Termination Year of the Company
as defined in Section 1362(e)(1)(B) of the Code.
"S Corporation Period" means, as to the Company the period commencing on
the effective date of its S election and ending on the date immediately
preceding the S Termination Date.
"S Corporation Taxable Income" means the taxable income of the Company from
all sources during the s corporation Period.
"S Short Year" means that portion of the S Termination Year of the Company
as defined in Section 1362(e)(1)(A) of the Code.
"S Termination Date" means the date on which the S corporation status of
the Company is terminated pursuant to Section 1362(d)(2) of the Code.
"S Termination Year" has the meaning set forth in Section 1362(e)(4) of the
Code.
(b) Termination of S Election; S Termination Year
(i) Effective Date. The S Termination Date shall be on the date
of the Effective Time of the Merger.
(ii) S Termination Year. The fiscal year in which the S
corporation status of the Company is terminated will be an S
Termination Year with respect to the Company for federal income
tax purposes, as defined in Section 1362(e)(4) of the Code.
(iii) S Short Year. Pursuant to Section 1362(e)(1)(A) of the
Code, the S Termination Year of the Company shall be divided into
two short taxable years: an S Short Year and a C Short Year. As
defined in Section 1362(e)(1)(A) of the Code, the S Short Year of
the Company shall be that portion of its S Termination Year
beginning on the initial day of its fiscal year and ending on the
day immediately preceding the S Termination Date. For federal
income tax purposes, the Company will be treated as an S
corporation during its S Short Year.
37
(iv) C Short Year. Pursuant to Section 1362(e)(1)(B) of the Code,
the portion of the S Termination Year beginning on the S
Termination Date and ending on the last day of the fiscal year,
shall be the C Short Year of the Company. For federal income tax
purposes, the Company will be taxed as a C corporation during the
C Short Year.
(c) Allocation of Income
(i) Allocation Election. Tax items shall be allocated to the
S Short Year and the C Short Year pursuant to normal tax
accounting rules (that is, the "closing of the books method")
rather than by the pro rata allocation method contained in
Section 1362(e)(2) of the Code.
(ii) Filing of Tax Returns. In respect to the foregoing
allocation, the Company shall cause to be prepared, at its
expense, and shall timely file all tax returns required by
federal, state and local law and, when appropriate, shall
allocate the tax items to the S Short Year and the C Short
Year pursuant to normal tax accounting rules (that is, the
"closing of the books method") rather than the pro rata
allocation method contained in Section 1362(e)(2) of the
Code.
(iii) The Shareholders and the Surviving Corporation shall
cooperate fully and consult with each other concerning the
allocation of tax items between the S Short Year and the C
Short Year. In the event the Shareholders and the Surviving
Corporation are unable to reach agreement concerning the
allocation of tax items between the S Short Year and the C
Short Year, the proper allocation shall be determined by one
of the accounting firms (commonly referred to within the
United States as the "big six") that is acceptable to the
Surviving Corporation and the Shareholders.
(d) Taxes
(i) Liability for Taxes Incurred During S Corporation Years
Including S Short Year. The Shareholders shall pay (and
shall indemnify, defend and hold harmless the Surviving
Corporation from and against liability with respect to) any
and all Taxes that are imposed on the Shareholders or the
Company and attributable to the taxable income of the
Company, including but not limited to, any taxable income of
the Company recognized as a result of the Merger of the
Company into Newco (but for reasons other than the failure
of the Merger to qualify as a tax-free reorganization
because of the breach of a representation, warranty or
covenant by WRI or Newco) for all taxable periods (or that
portion of any period including the S Short Year) during
which the Company was an S corporation. The Shareholders
shall pay any and all Taxes that are imposed on the
Shareholders or the Company as a result of the Company's S
election being treated as invalid or ineffective for any
reason or such election being revoked or terminated prior to
the S Termination Date.
38
(ii) Liability for Taxes Incurred During C Corporation Years Including C
Short Year. The Surviving Corporation shall pay or cause to be paid (and shall
indemnify, defend and hold harmless the Shareholders from and against liability
with respect to) any and all Taxes attributable to the taxable income of the
Surviving Corporation for the C Corporation Period. In no event will the
Surviving Corporation be required to pay any Taxes that are imposed upon the
Company as a result of the Merger of the Company into Newco (but for reasons
other than the failure of the Merger to qualify as a tax-free reorganization
because of the breach of a representation, warranty or covenant by WRI or
Newco).
(e) If any Shareholder receives notice of an intention by a
taxing authority to audit any return of such Shareholder that includes any item
of income, gain, deduction, loss or credit reported by the Company with respect
to the S Corporation Period that such Shareholder has reason to believe may
affect the Surviving Corporation's tax returns during the C Corporation Period,
the Shareholder shall inform the Surviving Corporation, in writing, of the audit
promptly after receipt of such notice. If any Shareholder receives notice from a
taxing authority of any proposed adjustment for which the Surviving Corporation
may be required to indemnify hereunder (a "Proposed Adjustment"), such
Shareholder shall give notice to the Surviving Corporation of the Proposed
Adjustment promptly after receipt of such notice from a taxing authority.
(f) If the Surviving Corporation receives notice of an
intention by a taxing authority to audit any return of the Surviving Corporation
that includes any item of income, gain, deduction, loss or credit reported by
the Surviving Corporation with respect to the period after the Merger during
which the Surviving Corporation is a C corporation that the Surviving
Corporation has reason to believe may affect such Shareholder's tax returns
during the S Corporation Period, the Surviving Corporation shall inform such
Shareholder in writing, of the audit promptly after receipt of such notice. If
the Surviving Corporation receives notice from a taxing authority of any
proposed adjustment for which such Shareholder may be required to indemnify the
Surviving Corporation hereunder (a "Surviving Corporation Proposed Adjustment"),
the Surviving Corporation shall give notice to the Shareholders of the Surviving
Corporation Proposed Adjustment promptly after receipt of such notice from a
taxing authority.
(g) The Surviving Corporation and the Shareholders shall
cooperate fully with each other in all matters relating to Taxes and in the
determination of amounts payable hereunder. In the case of disagreement as to
the course of action to be pursued in dealing with taxing authorities
(including, without limitation, matters with respect to preparation and filing
of tax returns, conduct of audits, and proceedings in courts), the decision of
39
the party (the Surviving Corporation, on the one hand, or the Shareholders, on
the other hand) who will economically benefit from or be burdened by the course
of action (or in the case both parties benefit and/or are burdened, the decision
of the party with the greatest benefit or burden) shall control.
(h) The Shareholders shall be entitled to all refunds of
income Taxes for the S Short Year and other tax periods ending before the
Closing Date. WRI and Newco shall be entitled to all refunds of income Taxes for
the C Short Year and other tax periods ending after the Closing Date. The
Shareholders and WRI and Newco shall cooperate in obtaining any refund of income
Taxes available from the relevant taxing authority.
10.6 Post-Closing Adjustments.ustments
(a) As soon as practicable following the Closing and in any
event within fifty (50) days following the Closing the Surviving Corporation and
the Shareholders shall prepare a balance sheet of the Partnership as of the
Closing and giving effect to the transactions described herein (the "Closing
Date Balance Sheet"). Such Closing Date Balance Sheet shall set forth the amount
in the working capital accounts conveyed to Newco (through its ownership of the
Partnership) pursuant to the transactions herein at the Closing determined in
accordance with generally accepted accounting principles consistently applied
except as expressly described below ($150,000.00 of which shall be hereinafter
referred to as the "Cash Amount") and the amount by which the current assets
(including the Cash Amount) of the Partnership exceed the current liabilities of
the Partnership (other than the current portion of long term debt and capital
leases, each as scheduled under the Old Asset Purchase Agreement) (the "Net
Asset Amount"). Such Cash Amount and the Net Asset Amount shall be evidenced by
a promissory note of WRI in the stated principal amount of the sum of (i)
$150,000.00 and (ii) the Net Asset Amount. The promissory note shall provide for
payment to the Shareholders (ratably based upon the shares of WRI Stock received
at the Closing) of an amount equal to the Net Asset Amount without interest
within sixty (60) days following the Closing or ten (10) business days following
the preparation of the Closing Date Balance Sheet, whichever is later. The
promissory note shall also provide for payment to the Shareholders without
interest on March 31, 1998 (ratably based upon the shares of WRI Stock received
at the Closing) of an amount equal to the Cash Amount (A) plus accounts
receivable collected by or on behalf of the Partnership by March 31, 1998 that
were not reflected on the Closing Date Balance Sheet and (B) less accounts
receivable not collected by March 31, 1998 that were reflected on the Closing
Date Balance Sheet. The determination whether an account receivable has been
collected for purposes of clause (B) of this Section 10.6(a) shall be made based
on the assumption that all amounts received from a receivable co-party from and
after the date of the Closing Date Balance Sheet shall be applied first to
reduce the related receivable existing on the date of the Closing Date Balance
Sheet until such receivable has been reduced to zero.
40
(b) Immediately following the Merger, the Partnership shall
have the Cash Amount (as defined in Section 10.6(a)) of not less than
$150,000.00 and a Net Asset Amount (as defined in Section 10.6(a) hereof) of not
less than $150,000.00. The determination of the existence and amount of the Cash
Amount and the Net Asset Amount shall be made in accordance with Section 10.6(a)
hereof.
11. INDEMNIFICATION
The Shareholders, WRI and Newco each make the following covenants that
are applicable to them, respectively.
11.1 WRI Losses.
(a) Each of the Shareholders, jointly and severally, agrees to
indemnify and hold harmless WRI, Newco and the Surviving Corporation, and their
respective directors, officers, employees, representatives, agents and attorneys
from, against, for and in respect of any and all WRI Losses (as defined below)
suffered, sustained, incurred or required to be paid by any of them by reason of
(i) any representation or warranty made by the Company or the Shareholders
pursuant to this Agreement (including, without limitation, the representations
and warranties contained in any certificate delivered pursuant hereto) being
untrue or incorrect in any material respect (other than Section 3.13
(Environmental Laws and Regulations) of the Old Asset Purchase Agreement, which
shall be subject to Section 11.2 hereof); (ii) the items described in Schedule
5.11 hereof except in any instance and to the extent WRI Losses result from the
negligence or misconduct of WRI, Newco or the Surviving Corporation; (iii) any
failure by such party to observe or perform its or his covenants and agreements
set forth in this Agreement or in any other agreement executed by it or him
expressly pursuant to this Agreement; (iv) any liability for warranties or
defective products arising from sales of goods manufactured or sold or services
provided by the Company or the Partnership prior to the Closing Date; (v) any
failure by the Company, any Shareholder or the Partnership to satisfy or
discharge any other liability or obligation not to be assumed by WRI or Newco
pursuant to this Agreement; or (vi) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus relating to the registration described in Section 6.7 (Registration
of WRI Stock) of the Old Asset Purchase Agreement or in any amendment or
supplement thereto or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each event to the
extent based upon information furnished to WRI or the Surviving Corporation by
the Shareholders or the Partnership or on such party's behalf. Subject to
Section 11.9 hereof, it is hereby acknowledged and agreed that Venture #1 and
Venture #2 shall be jointly and severally liable with the Shareholders for the
indemnification obligations under this Section 11.1(a), but only to the extent
that the Partnership would have been liable therefor under Section 11.2 of the
Old Asset Purchase Agreement.
(b) "WRI Losses" shall mean all damages (including, without
limitation, amounts paid in settlement with the Shareholders' consent pursuant
to Section 11.7 hereof), losses, obligations, liabilities, claims, deficiencies,
costs and expenses (including, without limitation, reasonable attorneys' fees),
41
penalties, fines, interest and monetary sanctions, including, without
limitation, reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and Agency orders, and other costs and expenses
incident to any suit, action, investigation, claim or proceeding or to establish
or enforce the rights of WRI, Newco and the Surviving Corporation or such other
persons to indemnification hereunder.
11.2 Environmental Indemnity.
(a) Each of the Shareholders, Venture #1 and Venture #2
(collectively the "Seller Indemnitors") agrees to indemnify and hold
harmless WRI, Newco and the Surviving Corporation, and their respective
directors, officers, employees, representatives, agents and attorneys
from, against, for and in respect of any and all Environmental Costs
(as defined below), arising in any manner in connection with a breach
of any representation or warranty set forth in Section 3.13 of the Old
Asset Purchase Agreement being untrue or incorrect in any material
respect.
(b) The obligations of this Section 11.2 shall include the
obligation to defend the Indemnified Parties (as defined below) against
any claim or demand for Environmental Costs, the obligation to pay and
discharge any Environmental Costs imposed on Indemnified Parties, and
the obligation to reimburse Indemnified Parties for any Environmental
Costs incurred or suffered, provided in each instance that the claim
for Environmental Costs arises in connection with a matter for which
Indemnified Parties are entitled to indemnification under this
Agreement. The obligation to reimburse the Indemnified Parties shall
also include the costs and expenses (including, without limitation,
reasonable attorneys' fees) to establish or enforce the rights of WRI,
Newco and the Surviving Corporation or such other persons to
indemnification hereunder.
(c) "Environmental Costs" shall mean any of the following that
arise in any manner regardless of whether based in contract, tort,
implied or express warranty, strict liability, Environmental
Requirement or otherwise: all liabilities, losses, judgments, damages,
punitive damages, consequential damages, treble damages, costs and
expenses (including, without limitation, reasonable attorneys' fees and
fees and disbursements of environmental consultants, all costs related
to the performance of any required or necessary assessments,
investigations, remediation, response, containment, closure,
restoration, repair, cleanup or detoxification of any impacted
property, the preparation and implementation of any maintenance,
monitoring, closure, remediation, abatement or other plans required by
any governmental agency or by Environmental Requirements and any other
costs recovered or recoverable under any Environmental Requirement),
fines, penalties, or monetary sanctions. Environmental Costs shall
include without limitation: (i) damages for personal injury or death,
or injury to property or to natural resources; (ii) damage to real
42
property or damage resulting from the loss of the use of all or any
part of the property, including but not limited to business loss; and
(iii) the cost of any demolition, rebuilding or repair of any property
required by Environmental Requirements or necessary to restore such
property to its condition prior to damage caused by an environmental
condition or by the remediation of an environmental condition.
11.3 Employee Compensation and Benefits.
(a) Each of the Seller Indemnitors, jointly and severally,
agrees to indemnify and hold WRI, Newco and the Surviving Corporation,
and their respective directors, officers, employees, representatives,
agents and attorneys harmless from, against, for and in respect of any
and all claims made by employees of the Partnership and GP, regardless
of when made, for wages, salaries, bonuses, pension, workmen's
compensation, medical insurance, disability, vacation, severance, pay
in lieu of notice, sick benefits or other compensation or benefit
arrangements to the extent the same are based on employment service
rendered to the Partnership prior to the Closing Date or injury or
sickness occurring prior to the Closing Date and are not scheduled
pursuant to this Agreement or reserved for on the Financial Statements
(Pre-Closing), or if the claim asserted is based upon or arises under
applicable law rather than an agreement or undertaking by the
Partnership, then only if the claim asserted arose or is based upon
acts or omissions occurring prior to the Closing Date and was not
disclosed as required by the terms of this Agreement (collectively,
Pre-Closing Employee Claims).
(b) Each of WRI and Newco, jointly and severally, agrees to
indemnify and hold the Seller Indemnitors and their agents and
attorneys harmless from, against, for and in respect of any and all
claims made by employees of the Surviving Corporation, regardless of
when made, for wages, salaries, bonuses, pension, workmen's
compensation, medical insurance, disability, vacation, severance, pay
in lieu of notice, sick benefits or other compensation or benefit
arrangements, except as otherwise expressly provided herein, to the
extent the same are based on employment service rendered to the
Surviving Corporation after the Closing Date or injury or sickness
occurring after the Closing Date (collectively, Post-Closing Employee
Claims).
11.4 Shareholder Losses.
(a) WRI and Newco, jointly and severally, agree to indemnify
and hold harmless the Seller Indemnitors, and their respective agents
and attorneys, from, against, for and in respect of any and all
Shareholder Losses (as defined below) suffered, sustained, incurred or
required to be paid by any of the Seller Indemnitors by reason of (i)
any representation or warranty made by WRI or Newco in or pursuant to
this Agreement (including, without limitation, the representations and
43
warranties contained in any certificate delivered pursuant hereto)
being untrue or incorrect in any material respect; (ii) any failure by
WRI or Newco to observe or perform its covenants and agreements set
forth in this Agreement or any other agreement or document executed by
it in connection with the transactions contemplated hereby; and (iii)
any liability for warranties or defective products arising from sales
of goods manufactured or sold or services provided by WRI or the
Surviving Corporation on or after the Closing Date; (iv) any failure
by WRI or the Surviving Corporation to satisfy and discharge any
liability or obligation expressly assumed by WRI or Newco pursuant to
this Agreement; (v) any and all claims made by employees of the
Company for workmen's compensation, medical insurance, disability,
vacation, severance, sick benefits or other compensation arrangements
to the extent the same are based on employment service rendered to WRI
or the Surviving Corporation on or after the Closing Date; or (vi) any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
registration described in Section 6.7 (Registration of WRI Stock) of
the Old Asset Purchase Agreement or in any amendment or supplement
thereto or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except with respect to information furnished to WRI or the Surviving
Corporation by the Seller Indemnitors or on such party's behalf.
(b) "Shareholder Losses" shall mean all damages (including,
without limitation, amounts paid in settlement with the consent of WRI
and Newco, which consent may not be reasonably withheld), losses,
obligations, liabilities, claims, deficiencies, costs and expenses
(including, without limitation, reasonable attorneys' fees), penalties,
fines, interest and monetary sanctions, including, without limitation,
reasonable attorneys' fees and costs incurred to comply with
injunctions and other court and Agency orders, and other costs and
expenses incident to any suit, action, investigation, claim or
proceeding or to establish or enforce the right of the Seller
Indemnitors or such other persons to indemnification hereunder.
11.5 Indemnification for Certain Tax Matters. The Shareholders shall
indemnify, defend and hold harmless the Surviving Corporation from and against
the liability of the Company or the Surviving Corporation with respect to all
Taxes, including interest and additions to Taxes, resulting from any final
determination (or settlement) that the Merger of the Company into Newco fails to
qualify as a tax-free transaction as to the Company and/or the Surviving
Corporation pursuant to Section 368(a)(1)(A) and Section 368(a)(2)(D) of the
Code as a result of any breach of a representation, warranty or a covenant of
the Company or a Shareholder. WRI and the Surviving Corporation shall indemnify,
defend and hold harmless the Shareholders from and against the liability of the
Shareholders, the Company and the Surviving Corporation with respect to all
44
Taxes, resulting from any final determination (or settlement) that the Merger of
the Company into Newco fails to qualify as a tax-free transaction as to the
Shareholders, the Company and/or the Surviving Corporation pursuant to Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Code as a result of any breach of a
representation, warranty or a covenant of WRI or Newco.
11.6 Notice of Loss. Except to the extent set forth in the next sentence, a
party to the Agreement will not have any liability under the indemnity
provisions of this Agreement with respect to a particular matter unless a notice
setting forth in reasonable detail the breach or other matter which is asserted
has been given to the Indemnifying Party (as defined below) and, in addition, if
such matter arises out of a suit, action, investigation, proceeding or claim,
such notice is given promptly, but in any event within thirty (30) days after
the Indemnified Party (as defined below) is given notice of the claim or the
commencement of the suit, action, investigation or proceeding. Notwithstanding
the preceding sentence, failure of the Indemnified Party to give notice
hereunder shall not release the Indemnifying Party from its obligations under
this Section 11, except to the extent the Indemnifying Party is actually
prejudiced by such failure to give notice. With respect to WRI Losses,
Environmental Costs, Pre-Closing Employee Claims and the matters described in
Section 11.5, the Shareholders (and, to the extent expressly specified herein,
Venture #1 and Venture #2), jointly and severally, shall be the Indemnifying
Party and WRI and Newco and their respective directors, officers, employees,
representatives, agents and attorneys shall be the Indemnified Parties. With
respect to Shareholder Losses, Post-Closing Employee Claims and the matters
described in the second sentence of Section 11.5, WRI and Newco, jointly and
severally, shall be the Indemnifying Party and the Shareholders (and, to the
extent expressly specified herein, Venture #1 and Venture #2), and their
respective agents and attorneys shall be the Indemnified Party.
11.7 Right to Defend. Upon receipt of notice of any suit, action,
investigation, claim or proceeding for which indemnification might be claimed by
an Indemnified Party, the Indemnifying Party shall be entitled to defend,
contest or otherwise protect against any such suit, action, investigation, claim
or proceeding at its own cost and expense, and the Indemnified Party must
cooperate in any such defense or other action. The Indemnified Party shall have
the right, but not the obligation, to participate at its own expense in defense
thereof by counsel of its own choosing, but the Indemnifying Party shall be
entitled to control the defense unless the Indemnified Party has relieved the
Indemnifying Party from liability with respect to the particular matter or the
Indemnifying Party fails to assume defense of the matter. In the event the
Indemnifying Party shall fail to defend, contest or otherwise protect in a
timely manner against any such suit, action, investigation, claim or proceeding,
the Indemnified Party shall have the right, but not the obligation, thereafter
to defend, contest or otherwise protect against the same and make any compromise
or settlement thereof and recover the entire cost thereof from the Indemnifying
Party including, without limitation, reasonable attorneys' fees, disbursements
and all amounts paid as a result of such suit, action, investigation, claim or
proceeding or the compromise or settlement thereof, provided, however, that the
Indemnified Party must send a written notice to the Indemnifying Party of any
such proposed settlement or compromise, which settlement or compromise the
Indemnifying Party may reject, in its reasonable judgment, within thirty (30)
days of receipt of such notice. Failure to reject such notice within such thirty
(30) day period shall be deemed an acceptance of such settlement or compromise.
The Indemnified Party shall have the right to effect a settlement or compromise
over the objection of the Indemnifying Party; provided, that if (i) the
45
Indemnifying Party is contesting such claim in good faith or (ii) the
Indemnifying Party has assumed the defense from the Indemnified Party, the
Indemnified Party waives any right to indemnity therefor. If the Indemnifying
Party undertakes the defense of such matters, the Indemnified Party shall not,
so long as the Indemnifying Party does not abandon the defense thereof, be
entitled to recover from the Indemnifying Party any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof other than the reasonable costs of investigation undertaken by the
Indemnified Party with the prior written consent of the Indemnifying Party. ▇▇.
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ shall have authority on behalf of the Seller Indemnitors and GP
to act on such parties' behalf pursuant to this Section 11 until the Seller
Indemnitors and GP have otherwise notified WRI and the Surviving Corporation in
writing.
11.8 Cooperation. Each of the parties hereto, and each of their affiliates,
successors and assigns shall cooperate with each other in the defense of any
suit, action, investigation, proceeding or claim by a third party and, during
normal business hours, shall afford each other access to their books and records
and employees relating to such suit, action, investigation, proceeding or claim
and shall furnish each other all such further information that they have the
right and power to furnish as may reasonably be necessary to defend such suit,
action, investigation, proceeding or claim, including, without limitation,
reports, studies, correspondence and other documentation relating to
Environmental Protection Agency, Occupational Safety and Health Administration,
and Equal Employment Opportunity Commission matters.
11.9 Limitations of Indemnification; Proportionate Payments. WRI, Newco, the
Surviving Corporation and the other persons or entities indemnified pursuant to
Sections 11.1, 11.2, 11.3 and 11.5 shall not assert any claim for
indemnification hereunder until such time as the aggregate of all claims that
such persons may have against the Indemnifying Parties shall exceed $50,000 with
respect to a single claim or all claims. The amount of the Indemnifying Party's
aggregate indemnification obligations under this Section 11 shall not exceed the
aggregate outstanding amount of the Notes from time to time. WRI, Newco and the
other persons or entities indemnified pursuant to Sections 11.1, 11.2, 11.3 and
11.5 shall be required to offset against amounts owing to the Seller Indemnitors
under the Notes and shall be limited to this remedy under this Section 11.
Notwithstanding anything herein to the contrary, Venture #1 and Venture #2,
respectively, shall only be liable under this Article 11 to the extent of the
aggregate principal amount of its Note outstanding from time to time, and such
Note shall only be subject to offset (pro rata with the Shareholders) in respect
of indemnification obligations under this Article 11 that would have been owed
by the Partnership under Article 11 of the Old Asset Purchase Agreement. Any
amounts paid to or by the Seller Indemnitors pursuant to this Section 11 shall
be paid in the same proportion of WRI Stock, valued at the then-fair market
value thereof, and Notes as set forth on Annex II (based on the gross
consideration paid by WRI to all parties in connection with the transaction).
The parties hereto agree that the aggregate liability of all of the
Shareholders, when taken together with the aggregate liability of Venture #1 and
Venture #2 solely under this Section 11, and pursuant to the Escrow Agreement
and the Guaranties shall not exceed $4,000,000 plus reasonable legal fees and
expenses incurred from and after the date on which the aggregate amount
outstanding under the Notes equals zero.
46
11.10 Survival of Covenants, Agreements, Representations and Warranties.
(a) Covenants and Agreements. All covenants and agreements
made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Closing and shall
continue in full force and effect thereafter according to their terms
without limit as to duration.
(b) Representations and Warranties. All representations and
warranties contained herein shall survive the Closing and shall
continue in full force and effect thereafter for a period of two (2)
years following the Closing, except that (i) the representations and
warranties contained in Section 5.7 and Section 7.10 hereof shall
survive until the earlier of (a) the expiration of the applicable
periods (including any extensions) of the respective statutes of
limitation applicable to the payment of the Taxes to which such
representations and warranties relate without an assertion of a
deficiency in respect thereof by the applicable taxing authority or (b)
the completion of the final audit and determinations by the applicable
taxing authority and final disposition of any deficiency resulting
therefrom, and (ii) the representations and warranties contained in
Sections 5.1, 5.2 and 5.3 and Sections 7.1, 7.2, 7.3 and 7.4 shall
survive indefinitely.
11.11 Exclusive Remedy. The indemnification provided for in this Section 11
shall be the exclusive remedy in any action seeking damages or any other form of
monetary relief brought by any party to this Agreement against another party;
provided, that nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement. The
parties agree that it would be impossible to measure in money the damage to the
Seller Indemnitors in the event of a breach of the obligations of WRI in Section
6.3 (Board of Directors of WRI) of the Old Asset Purchase Agreement hereof, and
the parties hereto agree that in the event of any such breach the Seller
Indemnitors will not have an adequate remedy at law and will be irreparably
damaged if such provisions are not specifically enforced. Therefore, the
provisions of Section 6.3 of the Old Asset Purchase Agreement without limitation
shall be enforceable in a court of equity by a decree of specific performance,
and each of the parties hereto hereby consents that injunctive relief may be
applied for and granted in connection therewith.
12. SECURITIES ACT REPRESENTATIONS AND TRANSFER RESTRICTIONS
The WRI Stock acquired by the Seller Indemnitors pursuant to this
Agreement is being acquired solely for their own accounts, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of it in connection with a distribution.
47
The WRI Stock is not presently registered under the 1933 Act and may not be sold
without registration unless an exemption from the applicable registration
requirements under the 1933 Act and state securities laws is available.
13. GENERAL
13.1 Cooperation. The Company, the Shareholders, BG, Tirus, Tirus LP,
Venture #1 and Venture #2, WRI and Newco shall each deliver or cause to be
delivered to the other on the Closing Date, and at such other times and places
as shall be reasonably agreed to, such additional instruments as the other may
reasonably request for the purpose of carrying out this Agreement. The Company
will cooperate and use its reasonable efforts to have the present officers,
directors and employees thereof cooperate with WRI on and after the Closing Date
in furnishing information, evidence, testimony and other assistance in
connection with any Tax return filing obligations, actions, proceedings,
arrangements or disputes of any nature with respect to matters pertaining to all
periods prior to the Closing Date.
13.2 Transactions in Old Asset Purchase Agreement. The parties to this
Agreement that are parties to the Old Asset Purchase Agreement acknowledge and
agree that it is such parties' intent that the economics of the transactions
evidenced by this Agreement are to be the same in all material respects as the
economics of the transactions evidenced by the Old Asset Purchase Agreement with
respect to the assets and businesses to be acquired by WRI and Newco and the
liabilities to be assumed thereby and otherwise.
13.3 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
WRI, and the heirs and legal representatives of the Shareholders.
13.4 Entire Agreement. This Agreement (including the Schedules, Exhibits and
Annexes attached hereto and the agreements (including the Old Asset Purchase
Agreement) expressly incorporated herein) and the documents delivered pursuant
hereto constitute the entire agreement and understanding among the Shareholders,
the Company, BG, Tirus, Tirus LP, Venture #1 and Venture #2, Newco and WRI, and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and this Agreement and the Annexes hereto may be modified or amended only by a
written instrument executed by the Shareholders, the Company, BG, Tirus, Tirus
LP, Venture #1, Venture #2, Newco and WRI, acting through their respective
officers.
48
13.5 Counterparts. This Agreement may be executed simultaneously in two (2)
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
13.6 Brokers and Agents. Except as disclosed on Schedule 3.22 to the Old
Asset Purchase Agreement, each party represents and warrants that it employed no
broker or agent in connection with this transaction and agrees to indemnify the
other against all loss, cost, damages or expense arising out of claims for fees
or commission of brokers employed or alleged to have been employed by such
indemnifying party.
13.7 Expenses. Whether or not the transactions herein contemplated shall be
consummated, (i) WRI and Newco will pay the fees, expenses and disbursements of
WRI and Newco and their respective agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the performance
and compliance with all conditions to be performed by WRI under this Agreement
(except with respect to the change in the structure of the transaction from that
described in the Old Asset Purchase Agreement to the transactions described in
this Agreement), (ii) the Shareholders will pay from personal funds and not from
the funds of the Company, the fees, expenses and disbursements of its agents,
representatives, accountants, business advisors or counsel incurred in
connection with the subject matter of this Agreement and (iii) the other parties
to this Agreement will each pay their own fees, expenses and disbursements of
its agents, representatives, accountants, business advisors or counsel incurred
in connection with the subject matter of this Agreement. The Shareholders
acknowledge that they, and not the Company or WRI, will pay all taxes due upon
receipt of the consideration payable to the Shareholders pursuant to Section 2
hereof.
13.8 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given by (a) depositing the same in United States
mail, addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested, (b) delivering the same in person to an
officer or agent of such party, or (c) telecopying the same with electronic
confirmation of receipt.
(i) If to WRI or Newco, addressed to them at:
New U.S. Tire Recycling Corp.
Waste Recovery, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
49
with copies to:
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Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
(ii) If to the Shareholders, addressed thereto at the address set forth on Annex
I;
with copies to:
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
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Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
and
▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
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Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
(iii) If to the Partnership, addressed to it at:
New U.S. Tire Recycling Corp.
c/o Waste Recovery, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: Mr. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
with copies with respect to (ii)-(iii) to:
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Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
50
(iv) If to Venture #1 and Venture #2, addressed to them at:
Environmental Venture Fund, L.P.
c/o First Analysis Corp./▇▇. ▇▇▇▇▇ ▇▇▇▇▇
Sears Tower
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▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Argentum Capital Partners, L.P.
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or to such other address or counsel as any party hereto shall specify pursuant
to this Section 13.8 from time to time.
13.9 Governing Law. This Agreement shall be construed, enforced and governed by
the internal laws of the State of Texas (without regard to its choice of law
principles).
13.10 Use of Certain Terms. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular paragraph, subparagraph or other
subdivision.
13.11 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof, and this Agreement may be modified or amended by a written
instrument executed by all of the parties hereto. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by all
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
13.12 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.
13.13 Time. Time is of the essence with respect to this Agreement.
51
13.14 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 enforceable 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.
13.15 Remedies Cumulative. No right, remedy or election given by any term of
this Agreement shall be deemed exclusive but each shall be cumulative with all
other rights, remedies and elections available at law or in equity.
13.16 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
13.17 Tax Structure. It is the intent of the parties that the certain of
transactions contemplated by this Agreement be structured as a tax-free
reorganization under Section 368(a) of the Code.
52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
WASTE RECOVERY, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
NEW U.S. TIRE RECYCLING CORP.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
U.S. TIRE RECYCLING PARTNERS, L.P.
By: U.S. TIRE RECYCLING CORP., its general partner
By: /S/▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇ CAPITAL HOLDINGS, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
TIRUS, INC.
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
TIRUS ASSOCIATES, L.L.C., a New York limited liability
company
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, member
By: /S/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
ENVIRONMENTAL VENTURE FUND, L.P.
By: FIRST ANALYSIS CORP., general partner
By: /S/ ▇. ▇▇▇▇▇▇
Name: ▇. ▇▇▇▇▇▇
ARGENTUM CAPITAL, L.P.
By: Argentum Capital Partners, L.P.,
general partner
By: /s/ WALTER BRANDIAN
Name: Walter Brandian
THE SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
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/s/ ▇▇▇ ▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇ ▇▇▇▇▇
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/s/ ▇▇▇ ▇▇▇▇▇▇▇
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Annex III
TO THAT CERTAIN
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF SEPTEMBER 30, 1996
BY AND AMONG
WASTE RECOVERY, INC.
NEW U.S. TIRE RECYCLING CORP.
U.S. TIRE RECYCLING PARTNERS, ▇.▇.
▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇ CAPITAL HOLDINGS, INC.
TIRUS, INC.
TIRUS ASSOCIATES, L.L.C.
ENVIRONMENTAL VENTURE FUND, L.P.
ARGENTUM CAPITAL, L.P.
AND
THE SHAREHOLDERS NAMED THEREIN
CONVERTIBLE SUBORDINATED NOTE
53
CONVERTIBLE SUBORDINATED NOTE
THIS NOTE HAS NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS IN THE MANNER PERMITTED
HEREIN.
WASTE RECOVERY, INC.
CONVERTIBLE SUBORDINATED NOTE
As of October 1, 1996
WASTE RECOVERY, INC., a Texas corporation (the "Company"), for value
received, hereby promises to pay to the order of (the "Holder(s)") the principal
amount of [ONE MILLION EIGHT HUNDRED AND FIFTY THOUSAND DOLLARS ($1,850,000)],
subject to adjustment as provided herein, and to pay interest (computed on the
basis of a 360-day year of twelve (12) 30-day months) on the principal at the
times and in the manner hereinafter provided.
Accrued interest on unpaid principal balance of this Note shall be
computed based on the following rates and their respective applicable periods:
Rate of Interest Applicable Period
Per Annum (As from the date hereof)
5% First twelve (12) months
6% Second twelve (12) months
7% Third twelve (12) months
7% Fourth twelve (12) months.
The accrued interest shall be paid quarterly in arrears commencing on January
____, 1997, and on each April ____, July ____, October ____, and January ____
thereafter during the term hereof in the amount accrued to the date of payment.
At the option of the Company, delivered to the Holder(s) not less than ten (10)
days before such interest payment is due and payable, interest payable under
this Note may be paid by delivery of shares of the Common Stock of the Company
valued at the average bid price for such shares for the prior sixty (60) day
period ending on the tenth (10th) trading day preceding (and not including) the
date such interest payment is due and payable.
The principal amount of this Note shall be due and payable to the
Holder(s) hereof in the following installments:
54
Amount of Principal Due Date
$500,000 Last day of the 30th month from the date hereof
$450,000 Last day of the 36th month from the date hereof
$450,000 Last day of the 42nd month from the date hereof
$450,000 Last day of the 48th month from the date hereof.
The principal of and interest on this Note shall be payable at the
principal office of the Company and shall be forwarded to the address(es) of the
Holder(s) hereof as such Holder(s) shall from time to time designate.
ss.1 PREPAYMENT. This Note is subject to prepayment in whole or in part
at any time after twelve (12) months from the date hereof at the option of the
Company by giving the Holder(s) thirty (30) days prior written notice of the
Company's intent to prepay this Note stating the date of prepayment and the
amount of principal to be prepaid (the "Prepayment Notice"). Interest accrued to
the prepayment date on the principal amount of this Note to be prepaid will be
paid to the Holder(s) on the prepayment date. Notwithstanding the foregoing, the
Holder(s) of this Note may within thirty (30) days of the receipt of the
Prepayment Notice, elect not to accept the prepayment and, instead, may elect to
convert all of the then outstanding principal amount of this Note in accordance
with Section 2 hereof.
ss.2. CONVERSION.
ss.2.1 Conversion Price; Conversion Period. Subject to and upon
compliance with the provisions hereof, the Holder(s) of this Note shall have the
right at such Holder(s)' option, at any time commencing twelve (12) months from
the date of issuance of this Note, to convert all but not less than all of the
principal amount of this Note then outstanding into common stock of the Company
("Common Stock") at the price of $2.50 per share (the "Conversion Price"),
provided that such election to convert shall be agreed upon unanimously by the
holder(s) of all the Notes then outstanding.
ss.2.2 Manner of Conversion; Issuance of Certificate; Time Conversion
Effected. In order to exercise the conversion right provided under this Note,
the Holder(s) shall surrender this Note to the Company at the principal offices
thereof accompanied by a written statement certifying as to the unanimous
request of the Holder(s) to convert the full amount of principal then
55
outstanding (the "Conversion Request.") Within 10 business days following the
date on which a conversion of this Note is deemed effective in accordance with
the next succeeding sentence, the Company shall issue and deliver to the
Holder(s) hereof effecting such conversion, registered in such name or names as
such Holder(s) may designate, a certificate or certificates for the number of
full shares of Common Stock issuable upon the conversion of this Note, bearing
such necessary legend as required by law or the Company's Articles of
Incorporation. Such conversion shall be deemed to have been effected as of the
close of business on the date on which the Conversion Request shall have been
received by the Company and this Note shall have been surrendered as aforesaid;
at such time the rights of the Holder(s) of this Note as such Holder(s) shall
cease, and the person or persons whose name or names any certificate or
certificates for Common Stock shall be issuable shall be deemed to have become
the holder or holders of record of the shares of Common Stock represented
thereby.
ss.2.3 Fractional Shares; Accrued Interest. No fractional shares shall
be issued upon conversion of this Note, but in lieu of such fractional shares,
the Company shall make a cash payment therefor upon the basis of the Conversion
Price or the Default Conversion Price (as hereinafter defined), whichever
applicable, of such shares. The Company shall, forthwith upon such conversion,
pay all interest on this Note accrued to and including the date upon which this
Note shall have been deemed surrendered for conversion.
ss.2.4 Adjustments to Conversion Price. In the event the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares by way of a stock dividend payable in Common Stock or a stock
split or otherwise, the Conversion Price or Default Conversion Price stated
herein shall be proportionately reduced, and conversely, in the event the
Company shall combine its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price or Default Conversion Price stated herein
shall be proportionately increased. Notwithstanding the foregoing, no adjustment
shall be made to the Conversion Price or Default Conversion Price on account of
cash dividends on the Company's Common Stock.
ss.2.5 Certain Corporate Transactions. In the case of any capital
reorganization or any reclassification, exchange or substitution of the
Company's Common Stock, or in the case of the consolidation or merger of the
Company with any other corporation or in case of any sale, transfer or
distribution of all or substantially all of the assets of the Company (each such
case being hereinafter referred to as a "Transaction"), in each of the foregoing
cases (a) the Company shall give the Holder(s) hereof written notice of the
proposed Transaction not less than thirty (30) days prior to the consummation
thereof; (b) after providing the Company and, if applicable, the Successor
Corporation (as hereinafter defined) under the Transaction evidence reasonably
satisfactory to the Company and, if applicable, the Successor Corporation, of
the then outstanding obligations of the Company under this Note, the Holder(s)
hereof shall be entitled to receive upon consummation of the Transaction, the
kind and amount of shares of stock and other securities and property receivable
upon such Transaction by a shareholder of the number of shares of Common Stock
into which the amount of principal then outstanding under this Note might have
been converted pursuant to Article 2 hereof immediately prior to such
56
Transaction; and (c) the Company hereby agrees to deliver to the Holder(s)
hereof the shares of stock, other securities or property required so to be
delivered upon consummation of such Transaction in accordance with the foregoing
provision, and, if applicable, the Company further agrees to cause the Successor
Corporation to assume in writing prior to the consummation of such Transaction
the obligation to comply with the foregoing provision. The term "Successor
Corporation" as used in this section shall be the surviving corporation (if
other than the Company) in the case of a consolidation or merger or the buyer or
transferee in the case of a sale or transfer of all or substantially all of the
assets of the Company.
ss.2.6 Authorized Shares. The Company covenants that during the period
this Note is outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Company's Common Stock upon the exercise of the conversion rights under this
Note.
ss.3. DEFAULTS AND REMEDIES.
ss.3.1 Events of Default; Acceleration. If any of the following events (herein
called "Events of Default") shall occur and be continuing:
(a) The Company shall default in the payment of any part of
the principal under this Note when the same shall be due and payable as
heretofore provided and the Company thereafter shall fail to cure the
default within fifteen (15) days after receiving written notice from
the Holder(s) demanding payment of such amount so due and payable; or
(b) The Company shall default in the payment of an installment
of interest under this Note when the same shall be due and payable as
heretofore provided and the Company thereafter shall fail to cure the
default within fifteen (15) days after receiving written notice from
the Holder(s) demanding payment of such amount so due and payable; or
(c) The Company shall default in the performance of or
compliance with any agreement, promise, condition or term contained
herein and the Company thereafter shall fail to cure the default within
thirty (30) days after receiving written notice from the Holder(s)
demanding performance of or compliance with such agreement, promise,
condition or term; or
(d) The Surviving Corporation (as defined in the Agreement
described in Section 4.7 hereof) shall default in the performance of or
57
compliance with its obligations as set forth in either Section 10.1(a)
(with reference to the Board of Directors of the Surviving Corporation)
or 10.3 of the Agreement;
then and in each and every such case, the Holder(s) may, acting unanimously,
declare the principal of this Note then outstanding plus all accrued interests
thereon to be due and payable. Such acceleration may be made by delivering
written notice (an "Acceleration Notice") thereof to the Company.
ss.3.2 Adjustments to Principal. (a) Upon the occurrence of an Event of
Default and in the event the cash flow of Newco, defined for purposes of this
Note to be Newco's operating cash flow determined in accordance with generally
accepted accounting principles plus (i) borrowed money of Newco for capital
expenditures and less (ii)(A) capital expenditures, (B) scheduled amounts of
principal amortization as set forth on Schedule 3.2 hereto and (C) other
principal amortization on debt incurred to fund Newco's operations, including
amortization on borrowings to fund capital expenditures (and excluding optional
prepayments and payments of principal under this Note) ("Cash Flow"), during the
forty-eight (48) month period following the date hereof shall be less than
$2,330,000 (which equals an average of $48,541.67 per month), or if calculated
for a period shorter than forty-eight (48) months, the Cash Flow during such
shorter period shall be less than the amount determined by multiplying
$48,541.67 by the number of whole months or portions thereof in such shorter
period, and Newco has been operated in all material respects in accordance with
both the past operating practices of U.S. Tire Recycling Partners, L.P. and the
ongoing written recommendations of the Holder(s), the amount of principal due
and payable under ss.3.1 shall be reduced by an amount equal to seventy-five
percent (75%) of (i) such actual or calculated shortfall in Cash Flow for the
forty-eight month or shorter period, as the case may be, determined at the time
of default, plus (ii) that amount equal to the interest heretofore paid by the
Company under this Note that is in excess of the interest payable on the amount
of principal as so adjusted in accordance with this section. During the term of
this Note, the Company shall operate Newco as a wholly-owned subsidiary and
shall not allocate overhead expense to Newco's operations except to the extent
that such overhead expense applies directly to Newco's business and operations
and based on Newco's predecessor's historical cost for such items.
(b) The Company acknowledges and agrees that the payment of the Cash
Amount (as defined in Section 1.4 of the Agreement (as defined in Section 4.7
hereof)) pursuant to the last sentence of Section 1.4 of the Agreement shall not
be deemed to be a reduction of Newco's operating cash flow. In addition, an
amount equal to fifty percent (50%) of the compensation payable under the
Employment Agreement (as defined in the Agreement) for the first twelve (12)
months of the term thereof shall be included in operating cash flow for such
period and an amount equal to twenty-five percent (25%) of the compensation
payable thereunder shall be included in operating cash flow for the second
twelve (12) months of the term thereof.
58
ss.3.3 Remedies on Default. Upon occurrence of any Event of Default and
after receipt of the written Acceleration Notice by the Company, the Holder(s)
acting unanimously shall be entitled to the following remedies:
(a) Subject to and upon compliance of the provisions of
Article 2 hereof, the Holder(s) may elect to convert all but not less
than all of the then outstanding principal under this Note into Common
Stock of the Company at the price of $1.00 per share ("Default
Conversion Price"), which price shall be subject to adjustment as
provided for under ss.2.4 hereof; or
(b) The Holder(s) may elect to foreclose the pledge of one
hundred percent (100%) of the Common Stock of Newco, which pledge is
provided for under the Pledge Agreement (the "Pledge Agreement") dated
of even date herewith by and between the Company, Newco and the
Holder(s); or
(c) The Holder(s) may elect to exercise the rights provided
thereto under the Non-Recourse Secured Guaranty and to foreclose the
mortgage described in Section 10.3 of the Agreement (defined in Section
4.7 hereof) dated of even date herewith by and between the Company,
Newco and Holder(s).
ss.3.4 No Other Recourse. Except as otherwise provided heretofore under
ss.3.3, the Holder(s) of this Note shall have no other recourse against the
Company upon the occurrence of any Event of Default.
ss.4. MISCELLANEOUS PROVISIONS.
ss.4.1 No Rights or Liabilities of Shareholders. This Note shall not
entitle any Holder(s) hereof to any of the rights of shareholders of the
Company. No provision of this Note, in the absence of the actual conversion of
this Note into Common Stock under the terms hereof shall give rise to any
liability on the part of the Holder(s) as shareholders of the Company.
ss.4.2 Sale; Transfer; Assignment. Holder(s) shall not sell, transfer,
assign or otherwise dispose of this Note except to a party or parties expressly
approved by the Company or to the partners of the U.S. Tire Recycling Partners,
L.P., and provided that the person requesting such sale, transfer, assignment or
disposition shall furnish an opinion of counsel (both counsel and opinion shall
be satisfactory to the Company) to the effect that such sale, transfer,
assignment or disposition will not involve any violation of the registration
provisions of the Securities Act of 1933, as amended, or any similar federal or
state statutes.
ss.4.3 Governing Law. This Note shall be governed by and interpreted in
accordance with the laws of the State of Texas.
59
ss.4.4 Usurious Interest. Anything to the contrary herein
notwithstanding, in no event shall unaccrued interest hereunder be matured or
shall interest, unless and until the same shall have been accrued, be payable or
collectible hereunder nor shall any provision hereof in any event require the
payment or permit the collection of interest in excess of the maximum permitted
by the applicable law.
ss.4.5 Successor and Assigns. All reference to the Company herein shall
include its successors and assigns, and all covenants, stipulations, promises
and agreements contained herein by or on behalf of the Company shall be binding
upon its successors and assigns, whether so expressed or not.
ss.4.6 Descriptive Headings. The descriptive headings herein have been
inserted for convenience only and shall not be deemed to limit or otherwise
affect the construction of any provision hereof.
ss.4.7 Certain Adjustments to Principal and Interest Payable. Except as
otherwise provided in Section 11 of the Agreement, (a) in the event of a breach
of any terms, conditions, representations, warranties or covenants by the
Shareholders or GP (as defined in the Agreement referred to below) under the
Agreement and Plan of Reorganization dated of even date herewith by and between
the Company, Newco, U.S. Tire Recycling Partners, L.P., ▇▇▇▇▇▇/▇▇▇▇▇▇▇▇▇▇
Capital Holdings, Inc. ("BG"), Tirus, Inc. ("Tirus"), Tirus Associates, L.L.C.,
Environmental Venture Fund, L.P., Argentum Capital, L.P. and the Shareholders
named therein (the "Agreement"), the Company shall be entitled to reduce the
amount of principal then outstanding and accrued interest then due and payable
to the Holder(s) under this Note by an amount representing the damages suffered
by the Company or Newco as a result of the breach by the Shareholders, Tirus or
BG under the Agreement, as determined under Section 11 of the Agreement and (b)
this Note shall be reduced ratably together with all of the Notes then
outstanding. Except as provided in this ss.4.7 or in the Escrow Agreement or
Guaranties (each as defined in the Agreement) there shall not be any other
remedies against the Holder(s) in the event of such a breach.
ss.4.8 Tax Matters. The Company shall consistently characterize this
Note as a "contingent payment debt instrument" pursuant to Section 1.1275-4 of
the Treasury Regulations, as promulgated under the Internal Revenue Code of
1986, as amended, on all of its federal, state and local tax returns, as the
case may be.
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(Corporate Seal)
ATTEST: WASTE RECOVERY, INC.
By:
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Secretary Its:
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