EXHIBIT 2.5
ACQUISITION AGREEMENT
BY AND AMONG
PALEX, INC.,
WESTERN CONTAINER ACQUISITION, INC.
AND
▇▇▇▇ ▇▇▇▇▇▇▇▇
DATED AS OF FEBRUARY 23, 1998
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
1.1. Definitions........................................................1
1.2. Interpretation.....................................................4
ARTICLE II
THE ACQUISITION
2.1. The Acquisition....................................................5
2.2. Purchase Price.....................................................5
2.3. Closing............................................................5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1. Due Organization and Qualification.................................5
3.2. Authorization; Non-Contravention; Approvals........................5
3.3. Capitalization.....................................................6
3.4. Pooling-of-Interests Accounting....................................6
3.5. Subsidiaries.......................................................6
3.6. Financial Statements...............................................7
3.7. Liabilities and Obligations........................................7
3.8. Accounts and Notes Receivable......................................7
3.9. Assets.............................................................8
3.10. Material Customers, Contracts and Bartering Commitments...........8
3.11. Permits...........................................................9
3.12. Environmental Matters............................................10
3.13. Labor and Employee Relations.....................................10
3.14. Insurance........................................................10
3.15. Compensation; Employment Agreements..............................10
3.16. Noncompetition, Confidentiality and Nonsolicitation Agreements...10
3.17. Employee Benefit Plans...........................................11
3.18. Litigation and Compliance with Law...............................12
3.19. Taxes............................................................13
3.20. Absence of Changes...............................................13
3.21. Accounts with Banks and Brokerages; Powers of Attorney...........14
3.22. Absence of Certain Business Practices............................15
3.23. Competing Lines of Business; Related-Party Transactions..........15
3.24. Intangible Property..............................................15
3.25. Disclosure.......................................................15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
4.1. Organization......................................................15
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4.2. Authorization; Non-Contravention; Approvals.......................16
4.3. PalEx Common Stock................................................16
4.5. Disclosure........................................................17
ARTICLE V
CERTAIN COVENANTS
5.1. Release From Guarantees...........................................17
5.2. Future Cooperation; Tax Matters...................................17
5.3. Expenses..........................................................17
5.4. Registration Rights Agreement.....................................18
5.5. Repayment of Related Party Indebtedness...........................18
ARTICLE VI
INDEMNIFICATION
6.1. General Indemnification by Seller.................................18
6.2. Indemnification by PalEx..........................................18
6.3. Third Person Claims...............................................18
6.4. Indemnification Deductible........................................19
6.5. Indemnification Limitation........................................19
6.6. Indemnification for Negligence of Indemnified Party...............20
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. Prohibited Activities.............................................20
7.2. Equitable Relief..................................................21
7.3. Reasonable Restraint..............................................21
7.4. Severability; Reformation.........................................21
7.5. Material and Independent Covenant.................................21
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. General...........................................................21
8.2. Equitable Relief..................................................22
ARTICLE IX
POOLING-OF-INTERESTS ACCOUNTING
9.1. Execution of Documents Necessary for Pooling Treatment............22
9.2. Restrictions on Resale............................................22
ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. Compliance with Law..............................................23
10.2. Economic Risk; Sophistication....................................23
10.3. Rule 144 Reporting...............................................23
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ARTICLE XI
MISCELLANEOUS
11.1. Successors and Assigns...........................................24
11.2. Entire Agreement.................................................24
11.3. Counterparts.....................................................24
11.4. Brokers and Agents...............................................24
11.5. Notices..........................................................24
11.6. Survival of Representations and Warranties.......................26
11.7. Exercise of Rights and Remedies..................................26
11.8. Reformation and Severability.....................................26
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (this "AGREEMENT") is made as of the 23rd day
of February, 1998, by and among PalEx, Inc., a Delaware corporation ("PALEX"),
Western Container Acquisition, Inc., a Delaware corporation that is a subsidiary
of PalEx ("NEWCO"), and ▇▇▇▇ ▇▇▇▇▇▇▇▇ ("SELLER").
WHEREAS, Seller holds a 33% ownership interest in Western Container
Limited Liability Company, a Wyoming limited liability company (the "COMPANY");
and
WHEREAS, contemporaneous with the Closing, a subsidiary of PalEx is
acquiring the remaining ownership interests in the Company from Acme and ERI;
and
WHEREAS, Seller desires to sell to Newco, and Newco desires to purchase
from Seller, Seller's 33% ownership interest in the Company (the "OWNERSHIP
INTEREST"), in accordance with the terms of this Agreement (the "ACQUISITION");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, the parties hereto, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
1.1. DEFINITIONS. Capitalized terms used in this Agreement shall have the
following meanings:
"ACME" means Acme Barrel Company, Inc., an Illinois corporation.
"ACQUISITION" has the meaning set forth in the fourth paragraph of this
Agreement.
"AFFILIATE" of, or "AFFILIATED" with, a specified person or entity means a
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the specified person or entity.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"BALANCE SHEET DATE" means December 31, 1997.
"CLOSING" has the meaning set forth in SECTION 2.3.
"CLOSING DATE" has the meaning set forth in SECTION 2.3.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"COMPANY" has the meaning set forth in the second paragraph of this
Agreement.
"COMPETITIVE BUSINESS" means any business that competes with the Company
as of the date of this Agreement, or, if applicable, as of the date of the
termination of Seller's employment by the Company, including, without
limitation, any business that (a) reconditions, recycles, repairs, markets,
distributes, brokers, manages or transports drums or barrels and other logistics
services with respect thereto; or (b) competes with the Company for raw
materials (E.G., open top and closed top drums).
"ENCUMBRANCES" means all liens, encumbrances, mortgages, pledges, security
interests, conditional sales agreements, charges, options, rights of first
refusal, reservations, restrictions or other encumbrances or defects in title.
"EMPLOYEE BENEFIT PLAN" has the meaning set forth in SECTION 3.17.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in SECTION 3.17.
"ENVIRONMENTAL LAWS" means any Law or agreement with any Governmental
Authority relating to (a) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface land, subsurface land, plant and
animal life or any other natural resource) or to human health or safety or (b)
the exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance, in each case as amended and as in effect on the Closing Date.
The term "ENVIRONMENTAL LAW" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any substance.
"ERI" means Environmental Recyclers of Colorado Inc., a Colorado
corporation.
"ERISA" has the meaning set forth in SECTION 3.17.
"ERISA AFFILIATE" has the meaning set forth in SECTION 3.17.
"EXPIRATION DATE" has the meaning set forth in SECTION 11.6.
"FINANCIAL STATEMENTS" has the meaning set forth in SECTION 3.6.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with preceding years and throughout the periods involved.
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"GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign
government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"HAZARDOUS SUBSTANCES" means any substance presently or hereafter listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law. The term "HAZARDOUS
SUBSTANCES" includes, without limitation, any substance to which exposure is
regulated by any Governmental Authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
"INDEMNIFIED PARTY" has the meaning set forth in SECTION 6.3.
"INDEMNIFYING PARTY" has the meaning set forth in SECTION 6.3.
"LAW" or "LAWS" means any and all federal, state, local or foreign
statutes, laws, ordinances, proclamations, code, regulations, licenses, permits,
authorizations, approvals, consents, legal doctrine, published requirements,
orders, decrees, judgments, injunctions and rules of any Governmental Authority,
including, without limitation, those covering environmental, Tax, energy,
safety, health, transportation, bribery, recordkeeping, zoning, discrimination,
antitrust and wage and hour matters, in each case as amended and in effect from
time to time.
"LOSS" or "LOSSES" means all liabilities, losses, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and costs and expenses of investigation).
"MATERIAL CUSTOMERS" has the meaning set forth in SECTION 3.10.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"1933 ACT" means the Securities Act of 1933, as amended.
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"OPINION NO. 16" has the meaning set forth in SECTION 3.4.
OWNERSHIP INTEREST has the meaning set forth in the fourth paragraph of
this Agreement.
"PALEX" has the meaning set forth in the first paragraph of this
Agreement.
"PALEX COMMON STOCK" means PalEx's Common Stock, par value $.01 per share.
"PERMITS" has the meaning set forth in SECTION 3.11.
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"PERMITTED ENCUMBRANCES" means (a) any Encumbrances reserved against in
the Financial Statements as of the Balance Sheet Date, (b) Encumbrances for
property or ad valorem Taxes not yet due and payable or which are being
contested in good faith and by appropriate proceedings if adequate reserves with
respect thereto are maintained on the Company's books in accordance with GAAP,
and (c) obligations under operating and capital leases described in SCHEDULE
3.10.
"PLAN" has the meaning set forth in SECTION 3.17.
"PURCHASE PRICE SHARES" has the meaning set forth in SECTION 6.5.
"QUALIFIED PLANS" has the meaning set forth in SECTION 3.17.
"RESTRICTED SHARES" has the meaning set forth in SECTION 10.1.
"RULE 144" means Rule 144 as promulgated under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"TAXES" has the meaning set forth in SECTION 3.19.
"TERRITORY" has the meaning set forth in SECTION 7.1.
"THIRD PERSON" has the meaning set forth in SECTION 6.3.
"WYOMING ACT" means the Wyoming Limited Liability Company Act, as amended.
1.2. INTERPRETATION. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in SECTION 1.1 and elsewhere in this Agreement
include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
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ARTICLE II
THE ACQUISITION
2.1. THE ACQUISITION. Upon the terms and subject to the conditions of this
Agreement, at the Closing, Newco shall purchase, and Seller shall sell and
assign to Newco, the Ownership Interest, free and clear of all liens, pledges,
claims and encumbrances.
2.2. PURCHASE PRICE. At the Closing, Newco shall cause PalEx to issue
106,021 shares of PalEx Common Stock to Seller in exchange for the Ownership
Interest.
2.3. CLOSING. The consummation of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of PalEx, ▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, concurrently with the execution of this
Agreement or at such other time and date as PalEx, the Company and the Seller
may mutually agree, which date is herein referred to as the "CLOSING DATE."
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Newco and PalEx as follows:
3.1. DUE ORGANIZATION AND QUALIFICATION. The Company is a limited
liability company duly organized, validly existing and in good standing under
the Laws of the State of Wyoming and is duly authorized and qualified to do
business under all applicable Laws and to carry on its business in the places
and in the manner as now conducted. The Company has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as such business is currently being conducted. SCHEDULE 3.1
contains a list of all jurisdictions in which the Company is authorized or
qualified to do business. True, complete and correct copies of the
organizational documents of the Company, each as amended, of the Company are
attached hereto as SCHEDULE 3.1. Correct and complete copies of all records and
minute books of the Company for the past five years have been made provided to
PalEx, and correct and complete copies of all other ownership records and minute
books of the Company have been made available to PalEx.
3.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Seller has the full legal right, power and authority to enter
into this Agreement. This Agreement has been duly and validly executed and
delivered by Seller and, assuming the due authorization, execution and
delivery hereof by PalEx and Newco, constitutes a valid and binding
agreement of Seller, enforceable against him in accordance with its terms.
(b) The execution and delivery of this Agreement by Seller do not,
and the consummation by Seller of the transactions contemplated hereby
will not, violate or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any
Encumbrance
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upon any of the properties or assets of the Company under any of the
terms, conditions or provisions of, (i) the organizational documents of
the Company, (ii) any Laws applicable to Seller or the Company or any of
his or its properties or assets, or (iii) except as set forth in SCHEDULE
3.2, any agreement, note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, lease or other instrument,
obligation or agreement of any kind to which Seller or the Company is now
a party or by which the Company or any of its properties or assets may be
bound or affected.
(c) Except as set forth in SCHEDULE 3.2, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any Governmental Authority or third party is necessary for the execution
and delivery of this Agreement by Seller or the consummation by Seller of
the transactions contemplated hereby. Except as set forth in SCHEDULE 3.2,
none of the Company's customer contracts providing for purchases
individually in excess of $50,000, or in the aggregate in excess of
$100,000, or other material agreements, licenses or permits to which the
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement by Seller and
the consummation of the transactions contemplated hereby.
3.3. CAPITALIZATION. The Ownership Interest represents a 33% equity
interest in the Company and is owned beneficially and of record by Seller, free
and clear of all Encumbrances. The Ownership Interest was not issued in
violation of the preemptive rights of any past or present member of the Company.
in SCHEDULE 3.3, no subscription, option, warrant, call, convertible or
exchangeable security, other conversion right or commitment of any kind exists
which obligates Seller to transfer any portion of the Ownership Interest.
3.4. POOLING-OF-INTERESTS ACCOUNTING. The Company has never been a
subsidiary or division of another corporation other than Acme and ERI or a part
of an acquisition which was later rescinded and, within the past two years,
there has not been any sale or spin-off of a significant amount of assets of the
Company or, to Seller's knowledge, any Affiliate of the Company other than in
the ordinary course of business. The Company owns no capital stock of PalEx. The
Company has not acquired any of its ownership interests during the past two
years. Except as set forth in SCHEDULE 3.4, the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
ownership interests or any interest therein or to pay any dividend or make any
distribution in respect thereof. Neither the voting structure of the Company nor
the relative ownership of shares among any of the Company's owners has been
altered or changed within the last two years in contemplation of the
Acquisition. No ownership interest in the Company was issued pursuant to awards,
grants or bonuses, and there has been no transaction or action taken with
respect to the equity ownership of the Company in contemplation of the
Acquisition that would prevent PalEx from accounting for the Acquisition under
the pooling-of-interests method of accounting in accordance with Opinion No. 16
of the Accounting Principles Board ("OPINION NO. 16").
3.5. SUBSIDIARIES. Except as set forth in SCHEDULE 3.5, the Company does
not own, of record or beneficially, or control, directly or indirectly, any
capital stock, securities convertible into or exchangeable for capital stock or
any other equity interest in any corporation, association or other business
entity. Except as set forth in SCHEDULE 3.5, the Company is not, directly or
indirectly, a participant in any joint venture, limited liability company,
partnership or other noncorporate entity.
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3.6. FINANCIAL STATEMENTS.
(a) The Company has delivered to PalEx complete and correct copies
of the following financial statements the unaudited balance sheets of the
Company as of December 31, 1995, 1996 and 1997 and the related unaudited
statements of operations, owners' equity and cash flows for the three-year
period ended December 31, 1997, together with the related notes and
schedules (such balance sheets, the related statements of operations,
owners' equity and cash flows and the related notes and schedules are
referred to herein as the "FINANCIAL STATEMENTS"). The Financial
Statements are attached as SCHEDULE 3.6 to this Agreement.
(b) Except as set forth in SCHEDULE 3.6, the Financial Statements
have been prepared from the books and records of the Company in conformity
with GAAP and present fairly the financial position and results of
operations of the Company as of the dates of such statements and for the
periods covered thereby. The books of account of the Company have been
kept accurately in all material respects in the ordinary course of
business, the transactions entered therein represent bona fide
transactions, and the revenues, expenses, assets and liabilities of the
Company have been properly recorded therein in all material respects.
3.7. LIABILITIES AND OBLIGATIONS. Except as set forth in SCHEDULE 3.7, as
of the Balance Sheet Date the Company did not have, nor has it incurred since
that date, any liabilities or obligations (whether absolute, accrued, contingent
or otherwise) of any nature, except (a) liabilities, obligations or
contingencies (i) that are accrued or reserved against in the Financial
Statements or reflected in the notes thereto or (ii) that were incurred after
the Balance Sheet Date and were incurred in the ordinary course of business and
consistent with past practices, and (b) liabilities and obligations that are of
a nature not required to be reflected in the Financial Statements prepared in
accordance with GAAP and that were incurred in the normal course of business and
are described in SCHEDULE 3.7. SCHEDULE 3.7 contains a reasonable estimate by
Seller of the maximum amount which may be payable with respect to liabilities
which are not fixed. For each such liability for which the amount is not fixed
or is contested, the Company has provided a summary description of the liability
together with copies of all relevant documentation relating thereto. SCHEDULE
3.7 sets forth the Company's outstanding principal amount of indebtedness for
borrowed money (including overdrafts) as of the date hereof.
3.8. ACCOUNTS AND NOTES RECEIVABLE. SCHEDULE 3.8 sets forth an accurate
list of the accounts and notes receivable of the Company as of the Balance Sheet
Date and of those generated between the Balance Sheet Date and the second
business day preceding the Closing Date, including any such amounts which are
not reflected in the Financial Statements as of the Balance Sheet Date.
Receivables from and advances to employees, the owners of the Company and any
entities or persons related to or Affiliates of such owners are separately
identified in SCHEDULE 3.8. SCHEDULE 3.8 also sets forth an accurate aging of
all accounts and notes receivable as of the Balance Sheet Date, showing amounts
due in 30-day aging categories. The trade and other accounts receivable of the
Company, including without limitation those classified as current assets in the
Financial Statements as of the Balance Sheet Date, are bona fide receivables,
were acquired in the ordinary course of business, and are stated in accordance
with GAAP.
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3.9. ASSETS.
(a) SCHEDULE 3.9 sets forth an accurate list of all real and
personal property included in "property and equipment" in the Financial
Statements as of the Balance Sheet Date and all other tangible assets of
the Company with a book value in excess of $10,000 (i) owned by the
Company as of the Balance Sheet Date and (ii) acquired since the Balance
Sheet Date, including in each case true, complete and correct copies of
leases for significant equipment and for all real property leased by the
Company and descriptions of all real property on which buildings,
warehouses, workshops, garages and other structures used in the operation
of the business of the Company are situated. SCHEDULE 3.9 indicates which
assets used in the operation of the business of the Company are currently
owned by owners of the Company or, to Seller's knowledge, Affiliates of
the Company or such owners. Except as specifically identified in SCHEDULE
3.9, to the knowledge of the Company and Seller, all of the tangible
assets, vehicles and other significant machinery and equipment of the
Company listed in SCHEDULE 3.9 are in good working order and condition,
ordinary wear and tear excepted, and have been maintained in accordance
with standard industry practices. All fixed assets used by the Company in
its business are either owned by the Company or leased under agreements
identified in SCHEDULE 3.9. All leases set forth in SCHEDULE 3.9 are in
full force and effect and constitute valid and binding agreements of the
Company, and to the knowledge of the Company, the other parties thereto in
accordance with their respective terms. SCHEDULE 3.9 contains true,
complete and correct copies of all title reports and title insurance
policies received or owned by the Company. SCHEDULE 3.9 also includes a
summary description of all plans or projects involving the opening of new
operations, expansion of existing operations or the acquisition of any
real property or existing business, to which management of the Company has
devoted any significant effort or expenditure in the two-year period prior
to the date of the Agreement, which if pursued by the Company would
require additional expenditures of capital.
(b) The Company has good and indefeasible title to the tangible and
intangible personal property and the real property owned and used in its
business, including the properties identified in SCHEDULE 3.9, free and
clear of all Encumbrances other than Permitted Encumbrances and those set
forth in SCHEDULE 3.9.
(c) The tangible and intangible assets of the Company include all
the assets used in the operation of the business of the Company as
conducted at April 30, 1997.
(d) Except as set forth in this SECTION 3.9 and in the other
representations and warranties in this Agreement, Seller is making no
representations or warranties as to the condition of the assets of the
Company, including, without limitation, any implied warranties or any
representation or warranty as to merchantability or fitness for any
particular purpose and, subject to the representations set forth in this
Agreement, such assets are being purchased "as is," "where is" and with
all faults.
3.10. MATERIAL CUSTOMERS, CONTRACTS AND BARTERING COMMITMENTS.
(a) SCHEDULE 3.10 sets forth an accurate list of (i) all customers
representing 5% or more of the Company's revenues for the fiscal year
ended April 30, 1997 or the eight-month period ended on the Balance Sheet
Date (the "MATERIAL CUSTOMERS"), and (ii) all material executory
contracts,
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commitments and similar agreements to which the Company is currently a
party or by which it or any of its properties is bound, including, but not
limited to, (A) all customer contracts in excess of $10,000, individually,
or $25,000 in the aggregate, including, without limitation, consignment
contracts, (B) contracts with any labor organizations, (C) leases
providing for annual rental payments in excess of $5,000, individually, or
$10,000 in the aggregate, (D) loan agreements, (E) pledge and security
agreements, (F) indemnity or guaranty agreements or obligations , (G)
bonds, (H) notes, (I) mortgages, (J) joint venture or partnership
agreements, (K) options to purchase real or personal property, and (L)
agreements relating to the purchase or sale by the Company of assets
(other than oral agreements relating to sales of inventory or services in
the ordinary course of business, consistent with past practices) or
securities for more than $5,000, individually, or $10,000 in the
aggregate. Prior to the date hereof, the Company has made available to
PalEx complete and correct copies of all such agreements.
(b) Except to the extent set forth in SCHEDULE 3.10, (i) no Material
Customer has canceled or substantially reduced or, to the knowledge of the
Company, threatening to cancel or substantially reduce its purchases of
the Company's products or services, and (ii) the Company is in compliance
with all material commitments and obligations pertaining to it under such
agreements and is not in default under any the agreements described in
SUBSECTION (A), no notice of default has been received by the Company, and
Seller and the Company are aware of no basis therefor.
(c) The Company is not a party to any governmental contracts subject
to price redetermination or renegotiation. The Company is not required to
provide any bonding or other financial security arrangements in any
material amount in connection with any transactions with any of its
customers or suppliers.
(d) SCHEDULE 3.10 sets forth a summary of the material terms of all
oral and written bartering arrangements to which the Company is a party.
The Company has a sufficient supply of uncommitted inventory to fulfill
its bartering obligations with third parties.
3.11. PERMITS. SCHEDULE 3.11 contains an accurate list of all material
licenses, franchises, permits, transportation authorities and other governmental
authorizations and intangible assets held by the Company, including, without
limitation, permits, licenses and operating authorizations, titles (including
motor vehicle titles and current registrations), fuel permits, franchises,
certificates, trademarks, trade names, patents, patent applications and
copyrights owned or held by the Company (the "PERMITS"). The Permits are valid,
and the Company has not received any written notice that any Governmental
Authority intends to cancel, terminate or not renew any such license, operating
authorization, franchise, permit or other governmental authorization. The
Permits are all the permits that are required by Law for the operation of the
business of the Company as conducted at the Balance Sheet Date and the ownership
of the assets of the Company. The Company has conducted and is conducting its
business in substantial compliance with the requirements, standards, criteria
and conditions set forth in the Permits, as well as the applicable orders,
approvals and variances related thereto, and is not in violation of any of the
foregoing. Except as specifically provided in SCHEDULE 3.11, the transactions
contemplated by this Agreement will not result in a default under or a breach or
violation of, or adversely affect the rights and benefits afforded to the
Company by, any Permits.
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3.12. ENVIRONMENTAL MATTERS. Except as set forth in SCHEDULE 3.12, (a) the
Company has complied with and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) the Company has obtained and complied with
all necessary permits and other approvals necessary to treat, transport, store,
dispose of and otherwise handle Hazardous Substances and has reported, to the
extent required by all Environmental Laws, all past and present sites owned or
operated by the Company where Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (c) there have been no "releases" or threats
of "releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by the Company; (d) there is no on-site or off-site
location to which the Company has transported or disposed of Hazardous
Substances or arranged for the transportation or disposal Hazardous Substances
which is the subject of any federal, state, local or foreign enforcement action
or any other investigation which could lead to any claim against the Company,
PalEx or Newco for any clean-up cost, remedial work, damage to natural resources
or personal injury, including, but not limited to, any claim under (i) the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, (ii) the Resource Conservation and Recovery Act, (iii) the Hazardous
Materials Transportation Act, or (iv) comparable state and local statutes and
regulations; and (e) the Company has no contingent liability in connection with
any release or disposal of any Hazardous Substance into the environment.
3.13. LABOR AND EMPLOYEE RELATIONS. Except as set forth in SCHEDULE 3.13,
the Company is not bound by or subject to any arrangement with any labor union.
Except as set forth in SCHEDULE 3.13, no employees of the Company are
represented by any labor union or covered by any collective bargaining agreement
nor, to the Company's or Seller's knowledge, is any campaign to establish such
representation in progress. There is no pending or, to the Company's or Seller's
knowledge, threatened labor dispute involving the Company and any group of its
employees nor has the Company experienced any significant labor interruptions
over the past five years. Neither the Company nor Seller has any knowledge of
any significant issues or problems in connection with the relationship of the
Company with its employees.
3.14. INSURANCE. SCHEDULE 3.14 sets forth an accurate list as of the
Balance Sheet Date of all insurance policies carried by the Company and of all
insurance loss runs or workmen's compensation claims received for the past five
policy years. Except as set forth in SCHEDULE 3.14, none of such policies is a
"claims made" policy. To the Company's and Seller's knowledge, the insurance
policies set forth in SCHEDULE 3.14 provide adequate coverage against the risks
involved in the Company's business. Such policies are currently in full force
and effect.
3.15. COMPENSATION; EMPLOYMENT AGREEMENTS. SCHEDULE 3.15 sets forth an
accurate schedule of all officers, directors and employees of the Company with
annual salaries of $70,000 or more, listing the rate of compensation (and the
portions thereof attributable to salary, bonus, benefits and other compensation,
respectively) of each of such persons as of (a) the Balance Sheet Date and (b)
the date hereof. Attached to SCHEDULE 3.15 are true, complete and correct copies
of each employment or consulting agreement any employee of the Company or
Seller.
3.16. NONCOMPETITION, CONFIDENTIALITY AND NONSOLICITATION AGREEMENTS.
SCHEDULE 3.16 sets forth all agreements containing covenants not to compete or
solicit employees or to maintain the confidentiality of information to which the
Company is bound or under which the Company has any rights or obligations.
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3.17. EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.17 sets forth an accurate schedule of each "EMPLOYEE
BENEFIT PLAN," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and all nonqualified
deferred compensation arrangements, whether formal or informal and whether
legally binding or not, under which the Company or an ERISA Affiliate has
any current or future obligation or liability or under which any present
or former employee of the Company or an ERISA Affiliate, or such present
or former employee's dependents or beneficiaries, has any current or
future right to benefits (each such plan and arrangement referred to
hereinafter as a "PLAN"), together with true and complete copies of such
Plans, arrangements and any trusts related thereto, and classifications of
employees covered thereby as of December 31, 1997. Except as set forth on
SCHEDULE 3.17, neither the Company nor any ERISA Affiliate sponsors,
maintains or contributes currently, or at any time during the preceding
five years, to any plan, program, fund or arrangement that constitutes an
employee pension benefit plan. Each Plan may be terminated by the Company,
or if applicable, by an ERISA Affiliate at any time without any liability,
cost or expense, other than costs and expenses that are customary and
reasonable in connection with the termination of a Plan. For purposes of
this Agreement, the term "EMPLOYEE PENSION BENEFIT PLAN" shall have the
meaning given that term in Section 3(2) of ERISA, and the term "ERISA
AFFILIATE" means any corporation or trade or business under common control
with the Company as determined under Section 414(b), (c), (m) or (o) of
the Code, but such term shall not include Acme or ERI.
(b) Each Plan listed on SCHEDULE 3.17 is in compliance in all
material respects with the applicable provisions of ERISA, the Code, and
any other applicable Law. With respect to each Plan of the Company and
each ERISA Affiliate (other than a "MULTIEMPLOYER PLAN," as defined in
Section 4001(a)(3) of ERISA), all reports and other documents required
under ERISA or other applicable Law to be filed with any Governmental
Authority, the failure of which to file could reasonably be expected to
result in a material liability to the Company or any ERISA Affiliate, or
required to be distributed to participants or beneficiaries, have been
duly filed or distributed. True and complete copies of all such reports
and other documents with respect to the past five years for each Plan have
been provided to PalEx. No "ACCUMULATED FUNDING DEFICIENCY" (as defined in
Section 412(a) of the Code) with respect to any Plan has been incurred
(without regard to any waiver granted under Section 412 of the Code), nor
has any funding waiver from the Internal Revenue Service been received or
requested. Each Plan that is intended to be "QUALIFIED" within the meaning
of Section 401(a) of the Code (a "QUALIFIED PLAN") is, and has been during
the period from its adoption to the date hereof, so qualified, both as to
form and operation and all necessary approvals of Governmental
Authorities, including a favorable determination as to the qualification
under the Code of each of such Qualified Plans and each amendment thereto,
have been timely obtained. Except as set forth in SCHEDULE 3.17, all
accrued contribution obligations of the Company with respect to any Plan
have either been fulfilled in their entirety or are fully reflected in the
Financial Statements.
(c) No Plan has incurred, and neither the Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to the
Internal Revenue Service. There have been no terminations, partial
terminations or discontinuances of contributions to any Qualified Plan
during the preceding five years without notice to and approval by the
Internal Revenue Service and payment of all obligations and liabilities
attributable to such Qualified Plan.
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(d) Neither the Company nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth
in the Plans, and neither the Company nor any ERISA Affiliate maintains or
has established any Plan that is a "WELFARE BENEFIT PLAN" within the
meaning of Section 3(1) of ERISA that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment, except as may be required by
Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the Code,
and at the expense of the participant or the beneficiary of the
participant, or retiree medical liabilities. Neither the Company nor any
ERISA Affiliate maintains, has established or has ever participated in a
multiple employer welfare benefit arrangement as described in Section
3(40)(A) of ERISA. Except as set forth in SCHEDULE 3.17, neither the
Company nor any ERISA Affiliate has any current or future obligation or
liability with respect to a Plan pursuant to the provisions of a
collective bargaining agreement.
(e) Neither the Company nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in
connection with any Plan. The assets of each Plan that is subject to Title
IV of ERISA are sufficient to provide the benefits under such Plan, the
payment of which the Pension Benefit Guaranty Corporation would guarantee
if such Plan were terminated, and such assets are also sufficient to
provide all other "BENEFITS LIABILITIES" (as defined in ERISA Section
4001(a)(16)) due under such Plan upon termination.
(f) No "REPORTABLE EVENT" (as defined in Section 4043 of ERISA) has
occurred and is continuing with respect to any Plan. There are no pending,
or to the Company's knowledge, threatened claims, lawsuits or actions
(other than routine claims for benefits in the ordinary course) asserted
or instituted against, and neither the Company nor any ERISA Affiliate has
knowledge of any threatened litigation or claims against, the assets of
any Plan or its related trust or against any fiduciary of a Plan with
respect to the operation of such Plan. To the Company's knowledge, there
are no investigations or audits of any Plan by any Governmental Authority
currently pending and there have been no such investigations or audits
that have been concluded that resulted in any liability to the Company or
any ERISA Affiliate that has not been fully discharged. Neither the
Company nor any ERISA Affiliate has participated in any voluntary
compliance or closing agreement programs established with respect to the
form or operation of a Plan.
(g) Neither the Company nor any ERISA Affiliate has engaged in any
prohibited transaction, within the meaning of Section 406 of ERISA or
Section 4975 of the Code, in connection with any Plan. Except as set forth
in SCHEDULE 3.17, neither the Company nor any ERISA Affiliate is, or ever
has been, a participant in or is obligated to make any payment to a
multiemployer plan. No person or entity that was engaged by the Company or
an ERISA Affiliate as an independent contractor can or will be
characterized or deemed to be an employee of the Company or an ERISA
Affiliate under applicable Laws for any purpose whatsoever, including,
without limitation, for purposes of federal, state and local income
taxation, workers' compensation and unemployment insurance and Plan
eligibility.
3.18. LITIGATION AND COMPLIANCE WITH LAW. Except as set forth in SCHEDULE
3.18, there are no claims, actions, suits or proceedings, pending or, to the
knowledge of the Company and Seller, threatened
12
against or affecting the Company, at law or in equity, or before or by any
Governmental Authority having jurisdiction over the Company. No written notice
of any claim, action, suit or proceeding, whether pending or threatened, has
been received by the Company and, to Seller's and the Company's knowledge, there
is no basis therefor. Except to the extent set forth in SCHEDULE 3.18, the
Company has conducted and is conducting its business in compliance with all Laws
applicable to the Company, its assets or the operation of its business.
3.19. TAXES. For purposes of this Agreement, the term "TAXES" shall mean
all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any state, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or any
other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable to or imposed with respect to any such taxes,
charges, fees, levies or other assessments. The Company has timely filed all
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing, and has duly paid in full or made adequate
provision in the Financial Statements for the payment of all Taxes for all
periods ending at or prior to the Closing Date. The Company has duly withheld
and paid or remitted all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other person or entity that required withholding under
any applicable Law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation. Except as set forth
in SCHEDULE 3.19, there are no examinations in progress or claims against the
Company relating to Taxes for any period or periods prior to and including the
Balance Sheet Date and no written notice of any claim for Taxes, whether pending
or threatened, has been received. The Company has not granted or been requested
to grant any extension of the limitation period applicable to any claim for
Taxes or assessments with respect to Taxes. The Company is not a party to any
Tax allocation or sharing agreement and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes. The amounts shown as
accruals for Taxes in the Financial Statements as of the Balance Sheet Date are
sufficient for the payment of all Taxes for all fiscal periods ended on or
before that date. True and complete copies of (a) any tax examinations, (b)
extensions of statutory limitations and (c) the federal, state and local Tax
returns of the Company for the last three fiscal years have been previously
provided to PalEx. There are no requests for ruling in respect of any Tax
pending between the Company and any Taxing authority. The Company currently
utilizes the accrual method of accounting for income tax purposes. Such method
of accounting has not changed in the past five years.
3.20. ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth in SCHEDULE 3.20, the Company has conducted its operations in the ordinary
course and there has not been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results or prospects of the Company;
(b) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company, individually or in the aggregate;
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(c) any change in the authorized capital stock of the Company or in
its outstanding securities or any change in Seller's ownership interest in
the Company or any grant of any options, warrants, calls, conversion
rights or commitments;
(d) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the Company;
(e) any increase in the compensation payable or to become payable by
the Company to Seller or any of its officers, directors, employees,
consultants or agents, except for ordinary and customary bonuses and
salary increases for employees in accordance with past practice, which
bonuses and salary increases are set forth in SCHEDULE 3.20;
(f) any work interruptions, labor grievances or claims filed;
(g) any sale or transfer, or any agreement to sell or transfer, any
material assets, properties or rights of the Company to any person,
including, without limitation, Seller and his Affiliates;
(h) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the Company;
(i) any increase in the Company's indebtedness, other than accounts
payable incurred in the ordinary course of business, consistent with past
practices or incurred in connection with the transactions contemplated by
this Agreement;
(j) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of the Company or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(k) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the Company's business;
(l) any waiver of any material rights or claims of the Company;
(m) any material breach, amendment or termination of any material
contract, agreement, Permit or other right to which the Company is a party
or any of its property is subject; or
(n) any other material transaction by the Company outside the
ordinary course of business.
3.21. ACCOUNTS WITH BANKS AND BROKERAGES; POWERS OF ATTORNEY. SCHEDULE
3.21 sets forth an accurate schedule, as of the date of this Agreement, of (a)
the name of each financial institution or brokerage firm in which the Company
has accounts or safe deposit boxes; (b) the names in which the accounts or boxes
are held; (c) the type of account and the cash, cash equivalents and securities
held in such account as of the
14
second business day prior to the Closing, none of which assets have been
withdrawn from such accounts since such date except for bona fide business
purposes in the ordinary course of the business of the Company; and (d) the name
of each person authorized to draw thereon or have access thereto. SCHEDULE 3.21
also sets forth the name of each person, corporation, firm or other entity
holding a general or special power of attorney from the Company and a
description of the terms thereof.
3.22. ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company, Seller,
any Affiliate of Seller nor, to Seller's knowledge, any Affiliate of the Company
has given or offered to give anything of value to any governmental official,
political party or candidate for government office nor has it otherwise taken
any action which would constitute a violation of the Foreign Corrupt Practices
Act of 1977, as amended, or any similar Law.
3.23. COMPETING LINES OF BUSINESS; RELATED-PARTY TRANSACTIONS. Except as
set forth in SCHEDULE 3.23, neither Seller, any Affiliate of Seller nor, to
Seller's knowledge, any Affiliate of the Company owns, directly or indirectly,
any interest in, or is an officer, director, employee or consultant of or
otherwise receives remuneration from, any business which is in a Competitive
Business or is a competitor, lessor, lessee, customer or supplier of the
Company. Except as set forth in SCHEDULE 3.23, no officer or director of the
Company nor Seller has nor, during the period beginning January 1, 1996 through
the date hereof, had any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company.
3.24. INTANGIBLE PROPERTY. SCHEDULE 3.24 sets forth an accurate list of
all patents, patent applications, trademarks, service marks, technology,
licenses, trade names, copyrights and other intellectual property or proprietary
property rights owned or used by the Company. The Company owns or possesses, and
the assets of the Company include, sufficient legal rights to use all of such
items without conflict with or infringement of the rights of others.
3.25. DISCLOSURE. Seller and the Company have provided PalEx or its
representatives all the information that PalEx has requested in analyzing
whether to consummate the Acquisition and the other transactions contemplated by
this Agreement. None of the information so provided nor any representation or
warranty of the Company or Seller to PalEx or Newco in this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to Seller as
follows:
4.1. ORGANIZATION. Each of PalEx and Newco is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware, and is duly authorized and qualified under all applicable Laws to
carry on its business in the places and in the manner now conducted. Each of
PalEx and Newco has the requisite power and authority to own, lease and operate
its assets and properties and to carry on its business as such business is
currently being conducted.
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4.2. AUTHORIZATION; NON-CONTRAVENTION; APPROVALS.
(a) Each of PalEx and Newco has the full legal right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement have been approved by the boards of directors of PalEx and Newco
and PalEx, as the sole stockholder of Newco. No additional corporate
proceedings on the part of PalEx or Newco are necessary to authorize the
execution and delivery of this Agreement and the consummation by PalEx and
Newco of the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by PalEx and Newco, and, assuming
the due authorization, execution and delivery by the Company and Seller,
constitutes a valid and binding agreement of PalEx and Newco, enforceable
against PalEx and Newco in accordance with its terms.
(b) The execution and delivery of this Agreement by PalEx and Newco
do not, and the consummation by PalEx and Newco of the transactions
contemplated hereby will not, violate or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under any of the terms, conditions or
provisions of (i) the Certificate of Incorporation or By-Laws of PalEx or
Newco, (ii) any Law applicable to either PalEx or Newco or any of its
properties or assets or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which PalEx or Newco is
now a party or by which either PalEx or Newco or any of its properties or
assets may be bound or affected.
(c) Except for such filings as may be required under federal or
state securities Laws, no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by
PalEx and Newco or the consummation by PalEx and Newco of the transactions
contemplated hereby.
4.3. PALEX COMMON STOCK. The shares of PalEx Common Stock to be issued to
Seller pursuant to the Acquisition, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The issuance of PalEx Common Stock pursuant to the Acquisition
will transfer to Seller valid title to such shares of PalEx Common Stock, free
and clear of all Encumbrances, except for any Encumbrances created by Seller.
4.4. SEC FILINGS; DISCLOSURE. PalEx has filed with the Securities and
Exchange Commission ("SEC") all material forms, statements, reports and
documents required to be filed by it under each of the Securities Act of 1933,
as amended (the "1933 ACT"), the Securities Exchange Act of 1934, as amended
(the "1934 ACT"), and the respective rules and regulations thereunder, (a) all
of which, as amended, if applicable, complied when filed in all material
respects with all applicable requirements of the appropriate Act and the rules
and regulations thereunder, and (b) none of which, as amended, if applicable,
contains any untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. Seller acknowledges that PalEx has informed him of its new $125
million credit facility, which it closed on January 29, 1998.
16
4.5. DISCLOSURE. PalEx has fully provided Seller or his representatives
with all the information that Seller has requested in analyzing whether to
consummate the Acquisition. None of the information so provided nor any
representation or warranty of PalEx contained in this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
CERTAIN COVENANTS
5.1. RELEASE FROM GUARANTEES. PalEx shall use its commercially reasonable
best efforts to have Seller released from the personal guarantees of the Company
indebtedness identified in SCHEDULE 5.1. PalEx hereby agrees to indemnify Seller
and hold Seller harmless for any amounts that Seller is required to pay in
connection with the enforcement of any obligations under such personal
guarantees after the Closing, including without limitation any reasonable
attorneys' fees and expenses incurred in connection therewith.
5.2. FUTURE COOPERATION; TAX MATTERS. Seller and PalEx shall each deliver
or cause to be delivered to the other following the Closing such additional
instruments as the other may reasonably request for the purpose of fully
carrying out this Agreement. Seller will cooperate and use his commercially
reasonable best efforts to have the present officers, directors and employees of
the Company cooperate with PalEx, Newco at and after the Closing in furnishing
information, evidence, testimony and other assistance in connection with any
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing. Seller will cooperate
with the Company in the preparation of all tax returns covering the period from
the beginning of the Company's current tax year through the Closing. In
addition, PalEx will provide Seller with access to such of the Company's books
and records as may be reasonably requested by Seller in connection with federal,
state and local tax matters relating to periods prior to the Closing. The party
requesting cooperation, information or actions under this SECTION 5.2 shall
reimburse the other party for all reasonable out-of-pocket costs and expenses
paid or incurred in connection therewith, which costs and expenses shall not,
HOWEVER, include per diem charges for employees or allocations of overhead
charges.
5.3. EXPENSES. PalEx will pay the fees, expenses and disbursements of
PalEx and its agents, representatives, accountants and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments thereto. The Company will pay ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP's expenses of
its audit of the Financial Statements. Seller will pay the fees and expenses
incurred in connection with the execution, delivery and performance of this
Agreement and any amendments hereto and the consummation of the transactions
contemplated hereby as follows: (a) all of such fees and expenses incurred by
Seller shall be paid by Seller, (b) all of such fees and expenses of Seller's
agents, representatives, financial advisors, accountants and counsel shall be
paid by Seller, and (c) 33% of such fees and expenses of the Company shall be
paid by Seller if such fees and expenses exceed $72,460; PROVIDED, HOWEVER, that
Newco will pay such fees, expenses and disbursements of the Company up to, but
not in excess of, an amount equal to (i) $1,000,000 less (ii) any fees, expenses
and disbursements of Acme, ESP Realty Corp., Inc. or ERI paid by PalEx, Newco or
any Affiliate of PalEx or Newco, or for which any such party is liable.
17
5.4. REGISTRATION RIGHTS AGREEMENT. Concurrently with the execution of
this Agreement, PalEx and Seller shall enter into a mutually acceptable
Registration Rights Agreement.
5.5. REPAYMENT OF RELATED PARTY INDEBTEDNESS. Concurrently with the
execution of this Agreement, (a) Seller shall repay to the Company all amounts
outstanding as advances to or receivables from Seller, each of which advances or
receivables is specifically reflected in SCHEDULE 3.8, and (b) the Company shall
repay all amounts outstanding under loans to the Company from Seller, each of
which loans to the Company is specifically reflected in SCHEDULE 3.7.
ARTICLE VI
INDEMNIFICATION
Seller, PalEx and Newco each make the following covenants:
6.1. GENERAL INDEMNIFICATION BY SELLER. Seller covenants and agrees that
he will indemnify, defend, protect and hold harmless PalEx, Newco and the
Company, and their respective officers, directors, employees, stockholders,
agents, representatives and Affiliates, at all times from and after the date of
this Agreement until the Expiration Date from and against all Losses incurred by
any of such indemnified persons as a result of or arising from (a) any breach of
the representations and warranties of Seller set forth herein or in the
Schedules or certificates delivered in connection herewith, (b) any breach or
nonfulfillment of any covenant or agreement on the part of Seller under this
Agreement, and (c) all income Taxes payable by the Company for all periods prior
to and including the Closing Date.
6.2. INDEMNIFICATION BY PALEX. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless Seller and his agents,
representatives, Affiliates , beneficiaries and heirs and employees at all times
from and after the date of this Agreement until the Expiration Date from and
against all Losses incurred by any of such indemnified persons as a result of or
arising from (a) any breach of the representations and warranties of PalEx or
Newco set forth herein or in the Schedules or certificates attached hereto, and
(b) any breach or nonfulfillment of any covenant or agreement on the part of
PalEx or Newco under this Agreement.
6.3. THIRD PERSON CLAIMS. Promptly after any party hereto (hereinafter the
"INDEMNIFIED PARTY") has received notice of or has knowledge of any claim by a
person not a party to this Agreement ("THIRD PERSON"), of the commencement of
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
SECTION 6.1, or 6.2 hereof (hereinafter the "INDEMNIFYING PARTY") written notice
of such claim or the commencement of such action or proceeding. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
18
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; PROVIDED, HOWEVER, that the Indemnified Party shall
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof, and the Indemnifying
Party shall not settle any such Third Person claim without the consent of the
Indemnified Party, unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; PROVIDED, HOWEVER,
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement unless such settlement provides for the complete release of the
Indemnified Party. If, upon receiving notice, the Indemnifying Party does not
timely undertake to defend such matter to which the Indemnified Party is
entitled to indemnification hereunder, or fails diligently to pursue such
defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, in its discretion, and the Indemnifying Party
shall reimburse the Indemnified Party for the amount paid in such settlement and
any other liabilities or expenses incurred by the Indemnified Party in
connection therewith.
6.4. INDEMNIFICATION DEDUCTIBLE. Neither Seller, on the one hand, nor
PalEx, Newco and the Company, on the other hand, shall be entitled to
indemnification from the other under the provisions of SECTION 6.1(A) or SECTION
6.2(A), as the case may be, until such time as, and only to the extent that, the
claims subject to indemnification by such other party exceed, in the aggregate,
$20,000. Notwithstanding the foregoing, the limitations set forth in this
SECTION 6.4 shall not apply to fraudulent misrepresentations.
6.5. INDEMNIFICATION LIMITATION.
(a) The aggregate indemnification obligation of Seller under SECTION
6.1(A) shall be limited to 50% of the sum of (a) the value of any shares
of PalEx Common Stock that (i) were received by Seller in the Acquisition
and (ii) have not been sold by Seller in a bona fide arms'-length
transaction to a third party that is not an Affiliate of Seller
(collectively, the "PURCHASE PRICE SHARES"), plus (b) the gross proceeds
from the sale of Purchase Price Shares in a bona fide arms'-length
transaction to a third party that is not an Affiliate of Seller.
Indemnification claims under this ARTICLE VI shall be settled first from
the sale or recovery of Purchase Price Shares, to the extent thereof, and
thereafter, from the gross proceeds from prior bona fide arms'-length
sales of Purchase Price Shares to third parties that are not Affiliates of
Seller.
(b) For purposes of this SECTION 6.5, the value of Purchase Price
Shares shall be the average closing price per share of PalEx Common Stock
for the 10 trading days ending on the second trading day before the date a
Loss becomes payable by Seller (either by agreement or
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pursuant to a judgment or binding determination by an arbitrator) in
accordance with this ARTICLE VI, as reported on The Nasdaq Stock Market or
such other national securities exchange on which the PalEx Common Stock is
principally traded. Notwithstanding the foregoing, the limitations set
forth in this SECTION 6.5 shall not apply to fraudulent
misrepresentations.
6.6. INDEMNIFICATION FOR NEGLIGENCE OF INDEMNIFIED PARTY. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VI INCLUDE RIGHTS TO INDEMNIFICATION
FOR THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE,
IF SUCH INDEMNIFIED PARTY WOULD OTHERWISE BE ENTITLED TO
INDEMNIFICATION HEREUNDER.
ARTICLE VII
NONCOMPETITION COVENANTS
7.1. PROHIBITED ACTIVITIES.
(a) For no additional consideration, Seller will not, for the longer
of (y) five years following the Closing Date and (z) one year following
Seller's voluntary termination of his employment with the Company or its
Affiliates or the termination of such individual's employment with the
Company "for cause" (as defined below), directly or indirectly, for
himself or on behalf of or in conjunction with any other person, company,
partnership, corporation or business of whatever nature:
(i) engage, as an officer, director, employee, shareholder,
owner, partner, joint venturer, or in a managerial or
advisory capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales
representative, in any Competitive Business within 250
miles of where the Company or any of its subsidiaries
conducts business (the "TERRITORY");
(ii) call upon any person who is an employee or consultant of
PalEx or the Company or any of their respective
subsidiaries for the purpose or with the intent of
enticing such employee or consultant away from or out of
the employ or contract with PalEx or the Company or any
of their respective subsidiaries; or
(iii) call upon any person or entity which is, at that time,
or which has been, within one year prior to that time, a
customer of the Company or PalEx or any of the
subsidiaries of such parties within the Territory for
the purpose of soliciting or selling services or
products in a Competitive Business within the Territory.
(b) For purposes of this Agreement, a termination of employment "for
cause" means: (i) Seller's gross negligence in the performance or
intentional nonperformance (continuing for 10 days after receipt of
written notice of need to cure) of any of Seller's duties and
responsibilities for
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the Company or reasonable instructions of the Board of Directors of the
Company within the scope of his employment by the Company; (ii) Seller's
dishonesty, fraud or misconduct with respect to the business or affairs of
the Company; (iii) Seller's conviction of a felony crime; or (iv) chronic
alcohol abuse or drug abuse by Seller.
(c) Notwithstanding the above, the foregoing covenant shall not be
deemed to prohibit Seller from acquiring, as a passive investor with no
involvement in the operations of the business, not more than one percent
of the capital stock of a Competitive Business whose stock is publicly
traded on a national securities exchange, the Nasdaq National Market or
over-the-counter.
7.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses to PalEx and the Company as a result of a breach of the foregoing
covenant, because a breach of such covenant would diminish the value of the
assets and business of the Company being sold pursuant to this Agreement, and
because of the immediate and irreparable damage that could be caused to PalEx
and the Company for which it would have no other adequate remedy, Seller agrees
that the foregoing covenant may be enforced against such individual by
injunctions, restraining orders and other equitable actions.
7.3. REASONABLE RESTRAINT. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE VII is necessary in terms of time, activity
and territory to protect PalEx's and the Company's interest in the assets and
business being acquired pursuant to the terms of this Agreement and impose a
reasonable restraint on Seller in light of the activities and business of the
Company on the date of the execution of this Agreement and the current plans of
the Company.
7.4. SEVERABILITY; REFORMATION. The covenants in this ARTICLE VII are
severable and separate, and the unenforceability of any specific covenant shall
not affect the continuing validity and enforceability of any other covenant. In
the event any court of competent jurisdiction shall determine that the scope,
time or territorial restrictions set forth in this ARTICLE VII are unreasonable
and therefore unenforceable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems reasonable
and this Agreement shall thereby be reformed.
7.5. MATERIAL AND INDEPENDENT COVENANT. Seller acknowledges that his
agreements and the covenants set forth in this ARTICLE VII are material
conditions to PalEx's and Newco's agreements to execute and deliver this
Agreement and to consummate the transactions contemplated hereby and that PalEx
and Newco would not have entered into this Agreement without such covenants. All
of the covenants in this ARTICLE VII shall be construed as an agreement
independent of any other provision in this Agreement.
ARTICLE VIII
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
8.1. GENERAL. Seller recognizes and acknowledges that he had in the past,
currently has, and in the future will have, access to certain confidential
information relating to the business of the Company, such as lists of customers,
operational policies, and pricing and cost policies that are, and following the
Closing will be, valuable, special and unique assets of the Company. Seller
agrees that he will not use or disclose such confidential information to any
person, firm, corporation, association or other entity for any purpose
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whatsoever, except as is required in the course of performing his duties to the
Company and/or PalEx, unless (a) such information becomes known to the public
generally through no fault of Seller, or (b) disclosure is required by Law,
PROVIDED that prior to disclosing any information pursuant to this clause (b)
Seller shall, if possible, give prior written notice thereof to PalEx and the
Company and provide PalEx with the opportunity to contest such disclosure. In
the event of a breach or threatened breach by Seller of the provisions of this
Section, PalEx shall be entitled to an injunction restraining Seller from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting PalEx from pursuing any other available remedy
for such breach or threatened breach, including, without limitation, the
recovery of damages.
8.2. EQUITABLE RELIEF. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, because a breach of
such covenant would diminish the value of the assets and business of the Company
being sold pursuant to this Agreement, and because of the immediate and
irreparable damage that would be caused for which the Company and/or PalEx would
have no other adequate remedy, Seller agrees that the foregoing covenants may be
enforced against him by injunctions, restraining orders and other equitable
actions.
ARTICLE IX
POOLING-OF-INTERESTS ACCOUNTING
9.1. EXECUTION OF DOCUMENTS NECESSARY FOR POOLING TREATMENT. If required,
Seller will execute any documentation reasonably required by PalEx's independent
public accountants to enable PalEx to account for the Acquisition as a
pooling-of-interests.
9.2. RESTRICTIONS ON RESALE. PalEx has informed Seller that PalEx intends
to account for the Acquisition as a pooling-of-interests under Opinion No. 16.
PalEx has also informed Seller that its ability to account for the Acquisition
as a pooling-of-interests was a material factor considered by PalEx in its
decision to enter into this Agreement. Therefore, pursuant to Opinion No. 16,
prior to the publication and dissemination by PalEx of consolidated financial
results which include results of the combined operations of the Company and
PalEx for at least 30 days on a consolidated basis following the Closing, Seller
shall not sell, offer to sell, or otherwise transfer or dispose of, any shares
of the PalEx Common Stock received by Seller, engage in put, call, short-sale,
straddle or similar transactions, or in any other way reduce the Seller's risks
of owning shares of PalEx. The certificates evidencing the PalEx Common Stock to
be received by Seller will bear a legend substantially in the form set forth
below:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, TRANSFER OR ASSIGNMENT, PRIOR TO THE PUBLICATION AND
DISSEMINATION OF FINANCIAL STATEMENTS BY THE ISSUER WHICH INCLUDE THE
RESULTS OF AT LEAST 30 DAYS OF COMBINED OPERATIONS OF THE ISSUER AND THE
COMPANY ACQUIRED BY THE ISSUER FOR WHICH THESE SHARES ARE ISSUED. UPON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER WILL REMOVE
THIS RESTRICTIVE LEGEND WHEN THIS REQUIREMENT HAS BEEN MET.
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ARTICLE X
FEDERAL SECURITIES ACT; RESTRICTIONS
ON PALEX COMMON STOCK
10.1. COMPLIANCE WITH LAW. Seller acknowledges the shares of PalEx Common
Stock issued at the Closing in accordance with the terms of this Agreement (the
"RESTRICTED SHARES") will not be registered under the 1933 Act and therefore may
not be resold without compliance with the 1933 Act. The Restricted Shares are
being or will be acquired by Seller solely for its own account, for investment
purposes only, and with no present intention of distributing, selling or
otherwise disposing of them in connection with a distribution. Seller covenants,
warrants and represents that none of the Restricted Shares will be, directly or
indirectly, offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC.
Certificates representing the Restricted Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE NOT ISSUED IN A
TRANSACTION REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS. THE SHARES
REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS OR, IN THE OPINION OF COUNSEL TO THE ISSUER, IS EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
10.2. ECONOMIC RISK; SOPHISTICATION. Seller is able to bear the economic
risk of an investment in the Restricted Shares and can afford to sustain a total
loss of such investment. Seller has such knowledge and experience in financial
and business matters that it or he is capable of evaluating the merits and risks
of the proposed investment and therefore has the capacity to protect its or his
own interests in connection with the acquisition of the Restricted Shares
pursuant hereto. Seller represents to PalEx that he is an "accredited investor,"
as that term is defined in Regulation D under the 1933 Act. Seller or his
representatives have had an adequate opportunity to ask questions and receive
answers from the officers of PalEx concerning, among other matters, PalEx, its
management, its plans for the operation of its business and potential additional
acquisitions.
10.3. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC that may permit the sale of PalEx
Common Stock to the public without registration, PalEx agrees, so long as Seller
holds any Restricted Shares, to use its reasonable best efforts to:
(a) make and keep public information (as such terms are defined in
Rule 144) regarding PalEx available;
(b) file with the SEC in a timely manner all reports and other
documents required of PalEx under the 1933 Act and the 1934 Act; and
(c) furnish to Seller upon written request a written statement by
PalEx as to its compliance with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, a copy of the most recent annual or
quarterly report of PalEx, and such other reports and documents so filed
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as Seller may reasonably request in availing itself of any rule or
regulation of the SEC allowing Seller to sell any such shares without
registration
ARTICLE XI
MISCELLANEOUS
11.1. SUCCESSORS AND ASSIGNS. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of Law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
PalEx, Newco and the Company, and the heirs and legal representatives of Seller.
11.2. ENTIRE AGREEMENT. This Agreement (including the Schedules, exhibits
and annexes attached hereto) and the documents delivered pursuant hereto
constitute the entire agreement and understanding among Seller, the Company,
Newco and PalEx and supersede any prior agreement and understanding relating to
the subject matter of this Agreement. This Agreement may be modified or amended
only by a written instrument executed by Seller, the Company, Newco and PalEx,
acting through their respective officers, duly authorized by their respective
Boards of Directors.
11.3. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
11.4. BROKERS AND AGENTS. Each party hereto represents and warrants that
it employed no broker or agent in connection with the transactions contemplated
by this Agreement. Subject to SECTION 5.3, each party agrees to indemnify each
other party against all loss, cost, damages or expense arising out of claims for
fees or commissions of brokers employed or alleged to have been employed by such
indemnifying party.
11.5. NOTICES. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx, Newco or the Company (after the Closing), addressed
to it at:
PalEx, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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(b) If to Seller, addressed as follows:
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
or such other address as any party hereto shall specify pursuant to this SECTION
11.5 from time to time.
11.6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties set forth in ARTICLE III and ARTICLE IV shall survive the Closing for
a period of 12 months from the Closing Date (the "EXPIRATION DATE"), except that
the representations and warranties set forth in SECTION 3.19 hereof shall
survive until such time as the limitations period has run for all tax periods
ended prior to the Closing Date, which shall be deemed to be the Expiration Date
for SECTION 3.19.
11.7. EXERCISE OF RIGHTS AND REMEDIES. Except as otherwise provided
herein, no delay of or omission in the exercise of any right, power or remedy
accruing to any party as a result of any breach or default by any other party
under this Agreement shall impair any such right, power or remedy, nor shall it
be construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
11.8. REFORMATION AND SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and unenforceable,
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement, and in either case, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
PALEX, INC.
By:_________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Vice President and General Counsel
WESTERN CONTAINER ACQUISITION, INC.
By:_________________________________
▇▇▇▇▇▇ ▇▇▇▇▇
President
_____________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇, Individually
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