Purchase Agreement - PalEx Inc.
PURCHASE AGREEMENT
by and among
PALEX, INC.,
TEXAS PALLET ACQUISITION, INC.,
IFCO SYSTEMS DE MEXICO, S. DE R.L. DE C.V.,
TEXAS PALLET, L.P.,
INTERSTATE PALLET HOLDING COMPANY, INC.,
NATIONAL PALLET - OKLAHOMA LLC,
TEXAS PALLET HOLDING COMPANY, INC.,
TEXAS PALLET SALES COMPANY, L.P.,
TEXAS PALLET FREIGHT COMPANY, L.P.,
TEXAS PALLET RECOVERY, INC.,
TEXAS PALLET DE MEXICO, S.A. DE C.V.,
CRAIG P. CHAMBERS,
CHARLES M. DAVIDSON,
JOHN D. MACLAY, JR.
JAMES J. MURPHY IV,
1999 CHAMBERS LIMITED PARTNERSHIP,
THE ESTATE OF JOHN D. MACLAY,
and
FARISH & FARISH, LLC
Dated as of August 4, 2000
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PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT (this "Agreement") is made as of the 4th day of
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August, 2000, by and among PalEx, Inc., a Delaware corporation ("PalEx"), Texas
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Pallet Acquisition, Inc., a Delaware corporation that is a wholly owned
subsidiary of PalEx ("Newco"), IFCO Systems de Mexico, S. de R.L. de C.V., a
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wholly owned subsidiary of Newco and PalEx ("PalEx Mexico"), Texas Pallet, L.P.
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("Texas Pallet"), Interstate Pallet Holding Company, Inc., National Pallet -
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Oklahoma LLC, Texas Pallet Holding Company, Inc., Texas Pallet Sales Company,
L.P., Texas Pallet Freight Company, L.P., Texas Pallet Recovery, Inc.,Texas
Pallet De Mexico, S.A. De C.V. ("Texas Pallet Mexico")(collectively, the "Asset
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Sellers"), and Craig P. Chambers, Charles M. Davidson, John D. Maclay, Jr.,
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James J. Murphy IV, 1999 Chambers Limited Partnership, The Estate of John D.
Maclay, and Farish & Farish LLC (the "Farish Stockholder" and together with
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Craig P. Chambers, Charles M. Davidson, John D. Maclay, James J. Murphy IV, 1999
Chambers Limited Partnership, and The Estate of John D. Maclay, being
collectively referred to herein, jointly and severally, as the "Owners"), which
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Owners are the holders of the equity ownership interests of the Companies that
are not owned by another Company.
WHEREAS, the Companies are in the businesses of buying, selling,
recycling, repairing, marketing, distributing, brokering, managing and/or
transporting pallets or pallet parts and providing other logistics services with
respect thereto; and
WHEREAS, the U.S. Asset Sellers desire to sell to Newco the U.S.
Businesses (as defined herein) owned and operated by the U.S. Asset Sellers and
in connection therewith substantially all of the assets of the U.S. Companies
(except as otherwise provided herein), and Newco desires to purchase such U.S.
Businesses and assets and assume certain liabilities of the U.S. Asset Sellers
relating thereto, upon the terms and conditions set forth in this Agreement; and
WHEREAS, Texas Pallet Mexico desires to sell to PalEx Mexico the
Mexican Business (as defined herein) and in connection therewith substantially
all of the assets of the Texas Pallet Mexico (except as otherwise provided
herein), and PalEx Mexico desires to purchase such Mexican Business and assets
and assume certain liabilities of Texas Pallet Mexico relating thereto, upon the
terms and conditions set forth in this Agreement; and
WHEREAS, the Owners desire to sell, and Newco desires to purchase, all
of the ownership interest of the Owners in the Target Companies;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by each party hereto, the parties
hereto, intending to be legally bound, agree as follows:
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ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement shall have
the following meanings:
"Affiliate" of, or "Affiliated" with, a specified person or entity
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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
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Agreement.
"Antitrust Division" means the Antitrust Division of the U.S.
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Department of Justice.
"Asset Sellers" has the meaning set forth in the first paragraph of
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this Agreement.
"Assets" has the meaning set forth in Section 2.1.
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"Assumed Liabilities" has the meaning set forth in Section 2.4.
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"Balance Sheet Date" has the meaning set forth in Section 3.4.
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"Businesses" means the businesses of the Companies and, including,
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without limitation, the buying, selling, recycling, repairing, marketing,
distributing, brokering, managing or transporting pallets or pallet parts and
other logistics services with respect thereto.
"Businesses' EBITDA" means the consolidated net income of the
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Businesses before any deduction for (a) interest, (b) state or federal income
taxes and state franchise taxes based on income, (c) depreciation, and (d)
amortization, but after a charge computed at 12% per annum on post-Closing (i)
increases in the Businesses' net working capital (current assets less current
liabilities determined consistently with the calculation of Closing Date Net
Working Capital) from the Closing Date Net Working Capital, as seasonally
adjusted, and (ii) capital expenditures in excess of depreciation charges on the
assets of the Businesses, all as determined in accordance with GAAP, as
consistently applied by the Businesses for the fiscal year ending December 31,
2000.
"Chep" means CHEP USA, a New York general partnership, and all its
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Affiliates.
"Chep Agreements" has the meaning set forth in Section 5.13.
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"Closing" has the meaning set forth in Section 2.10.
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"Closing Certificate" has the meaning set forth in Section 6.9.
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"Closing Date" has the meaning set forth in Section 2.10.
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"Closing Date Balance Sheet" has the meaning set forth in Section 2.7.
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"Closing Date Net Working Capital" has the meaning set forth in Section
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2.7.
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"Code" has the meaning set forth in Section 3.14.
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"Company" means any one of the Companies.
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"Companies" means the Asset Sellers, National Pallet Cincinnati, LLC,
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National Pallet LLC, and National Pallet - Louisiana, L.P.
"Companies' 401(k) Plan" has the meaning set forth in Section 5.14.
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"Companies' Accountant" has the meaning set forth in Section 2.5.
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"Company Stock" has the meaning set forth in Section 3.3.
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"Competitive Business" means any business that competes with the
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Businesses of any Company, including, without limitation, any business that (a)
manufactures, buys, sells, recycles, repairs, markets, distributes, brokers,
manages or transports new or used pallets or pallet parts and other logistics
services with respect thereto; or (b) competes with any Company for pallet
lumber, pallet carcasses and pallet fasteners.
"Contingent Purchase Price" has the meaning set forth in Section 2.5.
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"Contingent Purchase Price Estimate" has the meaning set forth in
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Section 2.5.
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"Continuing Employees" has the meaning set forth in Section 5.14.
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"Dispute Notice" has the meaning set forth in Section 2.5.
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"Earnout Term" means the period commencing on January 1, 2000 and
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ending on December 30, 2001
"EBITDA" means net income, before any deduction for (a) interest, (b)
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state or federal income taxes and state franchise taxes based on income, (c)
depreciation, and (d) amortization.
"EBITDA Base" has the meaning set forth in Section 2.5.
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"EBITDA Threshold" has the meaning set forth in Section 2.5.
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"Employee Benefit Plan" has the meaning set forth in Section 3.14.
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"Employee Pension Benefit Plan" has the meaning set forth in Section
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3.14.
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"Employment Agreement" has the meaning set forth in Section 5.5.
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"Encumbrances" means all liens, encumbrances, mortgages, pledges,
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security interests, conditional sales agreements, charges, options, rights of
first refusal, reservations, restrictions or other encumbrances or defects in
title.
"Environmental Laws" means any Law or agreement with any Governmental
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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
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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.
"Equipment" has the meaning set forth in Section 2.1.
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"ERISA" has the meaning set forth in Section 3.14.
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"ERISA Affiliate" has the meaning set forth in Section 3.14.
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"Excluded Assets" has the meaning set forth in Section 2.2.
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"Excluded Liabilities" has the meaning set forth in Section 2.4(a).
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"Expiration Date" has the meaning set forth in Section 12.8.
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"Farish Stockholder" has the meaning set forth in the first paragraph
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of this Agreement.
"Financial Statements" has the meaning set forth in Section 3.4(a)(ii).
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"FTC" means the U.S. Federal Trade Commission.
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"GAAP" means generally accepted accounting principles applied on a
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basis consistent with preceding years and throughout the periods involved.
"Goodwill" has the meaning set forth in Section 2.1.
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"Governmental Authority" means any federal, state, local or foreign
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government, political subdivision or governmental or regulatory authority,
agency, board, bureau, commission, instrumentality or court or
quasi-governmental authority.
"Hazardous Substances" means any substance listed, defined, designated
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or classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law. The term "Hazardous Substances"
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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, 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.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
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1976, as amended.
"IFCO" means IFCO Systems N.V., a Dutch public company and the parent
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corporation of PalEx.
"IFCO Ordinary Shares" means the ordinary shares of IFCO with a nominal
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value of Euro 2.00 each.
"Indemnified Party" has the meaning set forth in Section 8.3.
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"Indemnifying Party" has the meaning set forth in Section 8.3.
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"Intangible Property" has the meaning set forth in Section 3.21.
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"Interim Financial Statements" has the meaning set forth in Section
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3.4(a)(ii).
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"Law" or "Laws" means any and all federal, state, local or foreign
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statutes, laws, ordinances, code, regulations, licenses, permits, approvals,
consents, orders, decrees, judgments, injunctions and published rules of any
Governmental Authority, including, without limitation, those covering Tax,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
discrimination, antitrust and wage and hour matters, in each case as amended and
in effect from time to time.
"Lockup Period" has the meaning set forth in Section 11.2(a).
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"Loss" or "Losses" means all liabilities, losses, claims, damages,
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actions, suits, proceedings, demands, assessments, adjustments, fees, costs and
expenses (including specifically, but without limitation, reasonable attorneys'
fees and expenses of investigation), net of insurance proceeds and income Tax
effects with respect thereto (including, without limitation, income Tax benefits
recognized in connection therewith and income Taxes upon any indemnification
recovery thereof).
"Management Stockholders" has the meaning set forth in Section 5.5.
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"Material Customers" has the meaning set forth in Section 3.8(a).
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"Mexican Business" means the Business of Texas Pallet Mexico.
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"Nasdaq" means The Nasdaq Stock Market.
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"Net Working Capital" means the Companies' aggregate net working
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capital (current assets minus current liabilities, including any current
indebtedness that is not otherwise reflected in the calculation of the Purchase
Price under Section 2.3(a)), which working capital shall be computed from the
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Companies books and records consistent with past practices and shall not include
(a) Excluded Assets or Excluded Liabilities, or (b) indebtedness for borrowed
money included in the calculation of the Purchase Price under Section 2.3(a), to
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the extent such items in clauses (a) and (b) would otherwise be included in such
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computation.
"Newco" has the meaning set forth in the first paragraph of this
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Agreement.
"Newco EBITDA" means the consolidated net income of Newco and PalEx
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Mexico before any deduction for (a) interest, (b) state or federal income taxes
and state franchise taxes based on income, (c) depreciation, and (d)
amortization, but after a charge computed at 12% per annum on post-Closing (i)
increases in Newco's and PalEx Mexico's working capital (current assets less
current liabilities) from the combined Closing Date net working capital of the
Companies and the Southwest Region Facilities, as seasonally adjusted, and (ii)
capital expenditures in excess of depreciation charges on the assets of Newco
and PalEx Mexico, all as determined in accordance with GAAP, as consistently
applied by Newco and PalEx Mexico after the Closing and through the end of the
Earnout Term.
"Newco's Accountant" has the meaning set forth in Section 2.5.
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"Newco's Representatives" has the meaning set forth in Section 5.1.
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"NP Cincinnati" means NP Cincinnati LLC, a Delaware limited liability
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company.
"NP Louisiana" means NP Louisiana LLC, a Delaware limited liability
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company.
"NP LLC" means NP LLC, a Delaware limited liability company.
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"1934 Act" means the Securities Exchange Act of 1934, as amended.
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"1933 Act" means the Securities Act of 1933, as amended.
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"Owners"has the meaning set forth in the first paragraph of this
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Agreement.
"Parent Company" has the meaning set forth in Section 5.12.
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"Parent Companies" has the meaning set forth in Section 5.12.
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"PalEx" has the meaning set forth in the first paragraph of this
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Agreement.
"PalEx Mexico" has the meaning set forth in the first paragraph of this
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Agreement.
"PalEx's Retirement Plan" has the meaning set forth in Section 5.14.
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"PalEx's Health Plans" has the meaning set forth in Section 5.14.
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"Permits" has the meaning set forth in Section 3.9.
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"Permitted Encumbrances" means (a) Encumbrances for property or ad
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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 Companies' books in accordance with GAAP, (b) obligations
under operating and capital leases described on Schedule 3.7(b), and (c) such
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other liens that do not, in any material respect, affect the intended use, value
or marketability of any asset of the Companies.
"Plan" has the meaning set forth in Section 3.14.
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"Purchase Price" has the meaning set forth in Section 2.3.
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"Qualified Plans" has the meaning set forth in Section 3.14(c).
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"Reference Price" means $21.00.
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"Required Net Working Capital" has the meaning set forth in Section
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2.7.
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"Restricted Shares" has the meaning set forth in Section 11.1.
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"Rule 144" means Rule 144 as promulgated under the 1933 Act.
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"SEC" means the Securities and Exchange Commission.
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"Stockholders" means the Owners, collectively and jointly and
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severally, other than The Estate of John D. Maclay.
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"Southwest Region Facilities" has the meaning set forth in Section 2.5.
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"Target Companies" means NP Cincinnati LLC, NP LLC, and NP Louisiana
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LLC.
"Taxes" has the meaning set forth in Section 3.16.
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"Territory" has the meaning set forth in Section 9.1(a)(i).
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"Texas Pallet" has the meaning set forth in the first paragraph of this
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Agreement.
"Texas Pallet Mexico" has the meaning set forth in the first paragraph
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of this Agreement.
"Third Accounting Firm" has the meaning set forth in Section 2.5.
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"Third Person" has the meaning set forth in Section 8.3.
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"U.S. Asset Sellers" means all the Asset Sellers other than Texas
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Pallet Mexico.
"U.S. Businesses" means all the Businesses other than the business of
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Texas Pallet Mexico.
"Year-End Financial Statements" has the meaning set forth in Section
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3.4(a)(i).
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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
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Agreement include the plural as well as the singular;
(b) all accounting terms not otherwise defined herein have the
meanings ascribed to them in accordance with GAAP; and
(c) the words "herein," "hereof," and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to
any particular Article, Section or other subdivision.
ARTICLE II
THE PLAN OF ACQUISITION
2.1. The Acquisition. Upon the terms and subject to the conditions of
this Agreement, at the Closing, (i) the Owners shall sell and convey to Newco,
and Newco agrees to purchase, all ownership interests in the Target Companies,
(ii) the U.S. Asset Sellers shall, and the Stockholders shall cause the U.S.
Asset Sellers to, sell, convey, transfer, assign and deliver to Newco, and Newco
agrees to purchase from the U.S. Asset Sellers, all of the U.S. Asset Sellers'
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right, title and interest in the U.S. Asset Sellers' respective assets,
properties, U.S. Businesses, franchises, goodwill and rights of every kind and
character, tangible or intangible, real or personal, whether owned or leased,
and (iii) Texas Pallet Mexico shall, and the Stockholders shall cause Texas
Pallet Mexico to, sell, convey, transfer, assign and deliver to PalEx Mexico,
all of Texas Pallet Mexico's right, title and interest in Texas Pallet Mexico's
assets, properties, Mexican Business, franchises, goodwill and rights of every
kind and character, tangible or intangible, real or personal, whether owned or
leased, in the case of clauses (i), (ii), and (iii), free and clear of all
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Encumbrances other than Permitted Encumbrances and any created by Newco, PalEx
Mexico, or PalEx, as the case may be, other than Excluded Assets (the items
described in clauses (ii) and (iii) being herein collectively referred to as the
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"Assets"). Without limiting the generality of the foregoing, the Assets shall
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consist of all assets of the Asset Sellers (other than the Excluded Assets),
including, without limitation, the following:
(a) all (i) cash and cash equivalents, (ii) accounts and notes
receivable of the Asset Sellers, (iii) inventory (including, without
limitation, spare parts inventory) and (iv) work-in-process of the
Asset Sellers;
(b) all right, title and interest in, to and under all
existing contracts and agreements, written and verbal to which any
Asset Seller is a party, including, without limitation, those contracts
and agreements identified in Schedule 3.8;
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(c) vehicles and other transportation equipment of the Asset
Sellers, including, without limitation, the vehicles and other
transportation equipment set forth on Schedule 3.7;
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(d) all of the furniture, fixtures, equipment, machinery,
tools, appliances, telephone systems, copy machines, fax machines,
implements, spare parts, supplies and all other tangible personal
property of every kind and description owned or leased by any Asset
Seller (the "Equipment"), including, without limitation, the Equipment
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set forth on Schedule 3.7;
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(e) to the extent assignable, all right, title and interest
in, to and under all Permits owned or possessed by the Asset Sellers
and relating to the Businesses of the Asset Sellers or all or any of
the Assets, including, without limitation, the Permits of the Asset
Sellers set forth in Schedule 3.9;
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(f) all customer lists, sales records, credit data and other
information relating to customers of the Asset Sellers, the name "Texas
Pallet," and "National Pallet" and any derivations thereof, any trade
names or other assumed names under which the Asset Sellers operate, all
right, title and interest in, to and under all intangible property of
the Asset Sellers, the goodwill associated therewith and the rights and
privileges of the Asset Sellers used in the conduct of their Businesses
and the right to recover for infringement thereon, including, without
limitation, the intangible property set forth on Schedule 3.21
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(collectively, the "Goodwill");
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(g) copies of the Asset Sellers' books, records, papers and
instruments of whatever nature and wherever located that relate to the
Businesses of the Asset Sellers or the Assets or that are required or
necessary in order for Newco to conduct the Businesses of the Asset
Sellers from and after the Closing in the manner in which they were
being conducted before the Closing;
(h) to the extent relating to Assumed Liabilities, all
insurance proceeds and insurance claims of the Asset Sellers relating
to the Businesses of the Asset Sellers or all or any part of the
Assets, and to the extent transferable, the benefit of and the right to
enforce the covenants and warranties, if any, that any Asset Seller is
entitled to enforce with respect to the Assets against its predecessors
in title to the Assets, if any;
(i) all right, title and interest of the Asset Sellers in
computer equipment and hardware, including, without limitation, all
central processing units, terminals, disk drives, tape drives,
electronic memory units, printers, keyboards, screens, peripherals (and
other input/output devices), modems and other communication
controllers, networking equipment, and any and all parts and
appurtenances thereto, together with all software and intellectual
property used by the Asset Sellers with such computer equipment and
hardware, to the extent such software and intellectual property is
assignable;
(j) all right, title and interest of the Asset Sellers in, to
and under all rights, privileges, claims, causes of action, and options
relating to or pertaining to the foregoing assets; and
(k) all other or additional privileges, rights, interests,
properties and assets of the Asset Sellers of every kind and
description and wherever located that are used or intended for use in
connection with, or that are necessary to the continued conduct of,
their respective Businesses as conducted prior to the date hereof or
proposed to be conducted after the date hereof, provided that the
foregoing provisions of this clause shall not include claims any Asset
Seller may have against its officers or directors for acts or failures
to act prior to the Closing.
2.2. Excluded Assets. It is expressly understood and agreed that the
Assets shall not include, and Newco or PalEx Mexico, as the case may be, shall
not purchase and the respective Asset Sellers shall not sell or transfer to
Newco or PalEx Mexico, as the case may be, the following assets (collectively,
the "Excluded Assets"):
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(a) agreements with, or rights or claims of the Asset Sellers
or the Owners against Chep, except with respect to accounts receivable
and work-in-process;
(b) capital stock or membership or partnership interests of a
Company in another Company;
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(c) all insurance proceeds and claims of the Companies with
respect to Excluded Liabilities;
(d) the assets specifically described on Schedule 2.2.
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2.3. Purchase Price.
(a) At the Closing, Newco shall pay the Owners and the Asset
Sellers an aggregate purchase price for the ownership interests of the
Target Companies and the Assets, respectively, of $63,000,000, less the
Companies' indebtedness for borrowed money as of the Closing Date (the
"Purchase Price").
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(b) 72.8328% of the Purchase Price shall be payable at the
Closing in cash, by wire transfer to such accounts as may be specified
in writing by the Asset Sellers and the Owners at least three business
days before the Closing Date.
(c) At the Closing, Newco and PalEx shall cause IFCO to issue
to the Companies and the Owners a number of IFCO Ordinary Shares equal
to (i) 27.1672% of the Purchase Price divided by (ii) the Reference
Price, which quotient shall be rounded to the nearest whole number
(with .5 being rounded to the next highest whole number).
The Purchase Price shall be allocated among the U.S. Asset Sellers, Texas Pallet
Mexico and the Owners and payable as set forth in Schedule 2.3.
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2.4. Liabilities.
(a) As further consideration for the purchase of the Assets,
at the Closing Newco shall assume and agree to pay or perform: (i) the
normal course payables and accruals of the Asset Sellers relating to
their Businesses, and (ii) the Asset Sellers' liabilities and
obligations under the contracts and agreements described in Section
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2.1(b), to the extent such liabilities and obligations arise under such
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contracts and agreements after the Closing and are not reflected as
normal course payables or accruals in clause (i); provided, however,
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that notwithstanding anything to the contrary contained herein, neither
PalEx nor Newco shall assume or be liable for: (A) any liabilities or
obligations of the Asset Sellers, whether or not known, absolute or
contingent, including, without limitation, liabilities and obligations
of the Asset Sellers relating to the period prior to the Closing,
except to the extent described in clauses (i) and (ii); (B) any fees,
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expenses, finder's fees, brokerage commissions or advisory fees,
expenses or commissions that are obligations or liabilities of the
Asset Sellers or Owners and that relate to the consummation of the
transactions contemplated by this Agreement; (C) any Loss with respect
to, arising out of or from any claim, action, suit or proceeding,
whether disclosed or not, or now or hereafter arising, including any
claim arising out of or relating to (1) any liability or obligation of
any Asset Seller under any agreement, contract or undertaking by which
such Asset Seller is bound, to the extent such liability or obligation
is not specifically assumed by Newco under clause (i) or (ii) of this
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Section 2.4(a), or (2)
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any violation by any Asset Seller of any Law, including, without
limitation, any Environmental Law; (D) liabilities or obligations of
any Asset Seller with respect to claims by employees (other than
obligations for the payment of current compensation to the extent
assumed under clause (i)), workmen's compensation, employee benefit
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plans, product warranties or liabilities; (E) any Taxes of any Asset
Seller or the Owners resulting from the transactions contemplated by
this Agreement; (F) any obligations or liabilities of any Asset Seller
or any Owner to Chep (other than normal course payables and accruals
assumed under clause (i), all of which payables and accruals shall be
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specifically reflected in the Net Working Capital as of the Closing
Date, and (G) forklift lease obligations of USA Pallet Co. that were
guaranteed by a Company (collectively, the "Excluded Liabilities").
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(b) The liabilities and obligations of the Asset Sellers to be
assumed by Newco pursuant to the provisions of Section 2.4(a)(i) and
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(ii) are herein referred to as the "Assumed Liabilities." Neither PalEx
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nor Newco assumes or agrees to pay, perform or discharge, or shall be
responsible for, Excluded Liabilities, whether accrued, absolute,
contingent or otherwise. The Owners and the Asset Sellers agree that
the Asset Sellers shall remain solely responsible and liable for the
Excluded Liabilities.
2.5. Contingent Purchase Price.
(a) The Management Stockholders shall have primary control of,
and authority and responsibility for, the operations Newco and PalEx
Mexico during the Earnout Term.
(b) Effective as of January 1, 2001, PalEx shall cause the
assets and operations of the facilities listed on Schedule 2.5 (the
------------
"Southwest Region Facilities") to be transferred to Newco and shall
---------------------------
cause Newco to assume the liabilities and obligations relating to such
facilities. None of the operations of the Businesses or, after January
1, 2001, the Southwest Region Facilities will be transferred from Newco
prior to the expiration of the Earnout Term without the prior written
consent of the Management Stockholders. Prior to the transfer of the
Southwest Region Facilities to Newco, the Management Stockholders shall
advise the PalEx regional management currently responsible for the
operations of the Southwest Region Facilities on changes in the
operations of such facilities that the Management Stockholders desire
in good faith to be made before the end of fiscal 2000, and PalEx
agrees to use its commercially reasonable efforts to effect such
changes in a timely manner in consultation with the Management
Stockholders.
12
<PAGE>
(c) If
(i) the Businesses' EBITDA for 2000 exceeds $11,000,000,
and
(ii) Newco EBITDA for 2001 exceeds the sum of (A)
$18,500,000 plus (B) the excess, if any, the EBITDA
Base over the Businesses' EBITDA for 2000 (with the
sum of clauses (A) and (B) being herein referred to
----------- ---
as the "EBITDA Threshold"),
----------------
then Newco shall pay the Asset Sellers and Owners additional
consideration for the Assets and the ownership interests in the Target
Companies (the "Contingent Purchase Price") in an amount calculated by
-------------------------
multiplying $3,000,000 by the following fraction:
the excess, if any, of (A) Newco EBITDA for 2001 over
(B) the EBITDA Threshold
-------------------------------------------------------
$21,000,000 minus $18,500,000
; provided, however, that in no event shall the Contingent Purchase
-------- -------
Price exceed $3,000,000.
For purposes of this Agreement, the term "EBITDA Base" shall
-----------
mean (1) $11,800,000 less (2) the product of $1,280,000 multiplied by a
fraction, the numerator of which shall be the number of days remaining
in the calendar year 2000 after the Closing Date, and the denominator
of which shall be 366.
(d) The dollar amounts set forth in clauses (i) and (ii) of,
----------- ----
and in the fraction described in, Section 2.5(c) were computed based on
--------------
the Companies' budget for 2000 and 2001, which budget reflects
projected results of operations computed consistent with the Companies'
past practices and not in accordance with GAAP. Such dollar amounts
shall be adjusted to the extent necessary to reflect changes in the
Businesses' EBITDA for 2000 and Newco EBITDA for 2001 arising as a
result of calculating results of operations in accordance with GAAP and
not in accordance with the accounting principles applied by the
Companies before the date of this Agreement. For example, the
references to $11,000,000 in clause (c)(i) is based on the Companies'
-------------
adjusted 2000 budgeted EBITDA of $11,400,000. This amount was not
calculated in accordance with GAAP. Consequently, the reference to
$11,000,000 shall be proportionately adjusted to reflect any changes to
EBITDA resulting from the application of GAAP to the calculation of the
Companies' budgeted results of operations for 2000. For purposes of
this Section 2.5(d), GAAP shall mean the GAAP reflected in the 1999
--------------
financial statements of the Companies audited by Arthur Andersen LLP in
connection the transactions contemplated by this Agreement.
13
<PAGE>
(e) The payment of the Contingent Purchase Price, if any,
shall be payable to the Asset Sellers and Owners in cash, by wire
transfer to such accounts as may be specified in writing by the Asset
Sellers and Owners at least three business days before the date on
which such Contingent Purchase Price becomes payable.
(f) Within 90 days following the completion of the Earnout
Term, Newco shall prepare from its and PalEx Mexico's books and
records, which shall be consistently maintained during the Earnout Term
in accordance with GAAP, and deliver to the Asset Sellers and Owners a
schedule reflecting its good faith estimate of the Newco EBITDA for
2000 and 2001 and the amount of the Contingent Purchase Price, if any
(such estimate of the Contingent Purchase Price being herein referred
to as the "Contingent Purchase Price Estimate"). Within 30 days after
----------------------------------
Newco's delivery of the Contingent Purchase Price Estimate, the Asset
Sellers and Owners shall notify Newco in writing if they dispute the
amounts set forth in the Contingent Purchase Price Estimate (a "Dispute
-------
Notice"), providing reasonable details of the reasons for their dispute
------
and the Asset Seller's and Owner's recalculation of the disputed
amount. If the Asset Sellers and Owners do not provide a Dispute Notice
within such 30-day period, then the amounts set forth in the Contingent
Purchase Price Estimate shall be final, conclusive and binding on the
parties hereto. If the Asset Sellers and Owners provide a Dispute
Notice within such 30-day period, then the Asset Sellers and Owners and
Newco shall endeavor in good faith to promptly resolve the dispute
described therein. If the Asset Sellers and Owners and Newco are unable
to resolve such dispute within 30 days of the date of the Dispute
Notice, then such dispute shall be referred to Newco's independent
public accountants ("Newco's Accountant") and the Asset Sellers' and
------------------
Owner's independent public accountants (the "Companies' Accountant"),
---------------------
who shall endeavor in good faith to resolve such dispute and whose
joint determination shall be final, conclusive and binding on the
parties hereto. If Newco's Accountant and the Companies' Accountant are
unable to resolve such dispute within 15 days, then Newco's Accountant
and the Companies' Accountant shall mutually choose an independent
accounting firm with a national reputation (the "Third Accounting
----------------
Firm") to resolve such dispute, and the Third Accounting Firm's
----
determination of such dispute shall be final, conclusive and binding on
the parties hereto. Newco shall be responsible for any fees and
expenses of Newco's Accountant in connection with services provided
under this Section 2.5(f), and the Asset Sellers and Owners shall be
--------------
responsible for any fees and expenses of the Companies' Accountant in
connection with services provided under this Section 2.5(f). The fees
--------------
and expenses charged by any Third Accounting Firm for services
performed under this Section 2.5(f) shall be apportioned between the
--------------
Asset Sellers and Owners and Newco on the basis of the determination of
the Third Accounting Firm in relation to the determinations by each of
the Asset Sellers and Owners, on the one hand, and Newco, on the other.
For example, if (x) the Contingent Purchase Price Estimate sets forth
that the Contingent Purchase Price is $1,000,000, (y) the Dispute
Notice provides that the Contingent Purchase Price should be
$2,000,000, (z) Newco's Accountant and the Companies' Accountant are
unable to resolve such dispute and the Third Accounting Firm determines
in accordance with the terms hereof that the Final Contingent Purchase
Price is $1,800,000, then Newco shall be liable for 80% of the Third
Accounting Firm's
14
<PAGE>
fees and expenses and the Asset Sellers and Owners shall be liable for
the remaining 20% of such fees and expenses.
(g) Notwithstanding anything to the contrary contained herein,
the Asset Sellers and Owners may, but shall not be required to, cause
the Newco EBITDA to be calculated, if not already so calculated, to
reflect the following: (i) the elimination of any general
apportionments of corporate overhead to Newco or PalEx Mexico by PalEx
or IFCO, but reasonable charges and reasonable overhead allocations for
specific services provided by PalEx, IFCO or other IFCO Affiliates to
Newco or PalEx Mexico shall not be eliminated; (ii) the valuation of
transactions between Newco and PalEx Mexico and PalEx, IFCO or other
Affiliates of IFCO at fair market value, as if such transactions were
with independent third parties in arms'-length transactions; (iii) the
elimination of any gains or losses realized on the sale, exchange,
condemnation, expropriation or other disposition or destruction or loss
in value of Newco's or PalEx Mexico's capital assets or other
depreciable or amortizable property, provided such losses were not the
--------
direct or indirect result of the gross negligence or willful misconduct
of the Management Stockholders in the management or supervision of the
operations of Newco or PalEx Mexico; (iv) the elimination of
adjustments for any physical inventory of the assets of the Companies
conducted within 30 days after the Closing; and (v) the elimination of
charges and credits that would be classified as "extraordinary items"
under GAAP; provided (A) such adjustments are calculated in good faith
--------
by, and at the expense of, the Asset Sellers and Owners and the details
thereof are provided in the Dispute Notice; (B) if the Asset Sellers
and Owners include any such adjustments in a Dispute Notice, then for
15 days Newco shall be entitled to adjust the Contingent Purchase Price
Estimate or Contingent Purchase Price calculation, as the case may be,
to reflect any other adjustments of the type described in clauses (i)
-----------
through (v) that were not previously reflected in the calculation of
---
the Contingent Purchase Price Estimate or the Contingent Purchase
Price, as the case may be, and amend the Contingent Purchase Price
Estimate and its calculation of the Contingent Purchase Price to
reflect such adjustments; and (C) the total of the adjustments by the
Asset Sellers and Owners and Newco under this Section 2.5(d) have a net
--------------
effect on the Contingent Purchase Price in excess of $25,000.
(h) The amount of the Contingent Purchase Price, if any, shall
be due and payable to the Asset Sellers and Owners by Newco five
business days after the amount thereof has become final and binding on
the parties in accordance with this Section 2.5.
-----------
(i) Newco and PalEx Mexico shall provide the Asset Sellers and
Owners and the Companies' Accountant with reasonable access to its
books and records during normal business hours for the sole purpose of
confirming Newco's calculation of the Contingent Purchase Price
Estimate and the Contingent Purchase Price and determining the
adjustments described in Section 2.5(d).
--------------
(j) Until the end of the Earnout Term, neither Newco nor PalEx
Mexico will, and PalEx will not cause Newco or PalEx Mexico to,
liquidate, dissolve, merge with or otherwise acquire or relocate the
business of, or sell substantially all the assets of Newco
15
<PAGE>
or PalEx Mexico to, any other person or entity without the prior
consent of the Asset Sellers and Owners, which consent shall not be
unreasonably withheld or delayed.
(k) If the employment of more than one Management Stockholder
is terminated without "cause," as determined in accordance with the
Employment Agreements, prior to the expiration of the Earnout Term,
then the Contingent Purchase Price shall be $3,000,000 and shall be due
and payable immediately upon the termination of the second Management
Stockholder.
2.6. Conveyance Documents.
(a) At the Closing, the Asset Sellers shall execute and
deliver to Newco and PalEx Mexico, respectively, (i) completed Bills of
Sale and Assignment and Assumption Agreements, in a reasonably
acceptable form, covering all of the Assets, and (ii) a certificate of
title to any Asset covered by a certificate of title. At all times
hereafter as may be necessary, the Asset Sellers shall execute and
deliver to Newco and PalEx Mexico such other instruments of transfer as
shall be reasonably necessary or appropriate to vest in Newco and PalEx
Mexico, respectively, good and indefeasible title to the Assets, free
and clear of all Encumbrances other than Permitted Encumbrances and to
comply with the purposes and intent of this Agreement.
(b) At the Closing, the Owners shall execute such stock powers
or other assignments as shall be reasonably necessary or appropriate to
vest in Newco good and indefeasible title to the ownership interests of
the Target Companies, free and clear of all Encumbrances other than
Permitted Encumbrances and to comply with the purposes and intent of
this Agreement.
(c) At the Closing, Newco and PalEx Mexico shall respectively
execute and deliver to the Asset Sellers a completed Bill of Sale and
Assignment and Assumption Agreement, in a reasonably acceptable form,
providing for Newco's assumption of the Assumed Liabilities.
2.7. Post Closing Working Capital Adjustment.
(a) Not later than 90 days following the Closing Date, Newco
shall prepare a balance sheet of the Companies as of the Closing Date
(the "Closing Date Balance Sheet") and deliver to the Asset Sellers and
--------------------------
the Owners, in accordance with this Section 2.7, the Closing Date
-----------
Balance Sheet and a calculation of the Net Working Capital from the
Closing Date Balance Sheet (the "Closing Date Net Working Capital").
--------------------------------
The Closing Date Balance Sheet shall be prepared from the books and
records of the Companies using the same accounting practices as
employed in the preparation of the Financial Statements. All of the
parties hereto shall cooperate in good faith with each other in the
preparation of the Closing Date Balance Sheet and calculation of the
Closing Date Net Working Capital. The Asset Sellers and the Owners
shall have access at all reasonable times to review work papers, books
and records relating to the preparation of the Closing Date Balance
Sheet.
16
<PAGE>
(b) For purposes of this Agreement, the term "Required Net
------------
Working Capital" shall mean an amount equal to (i) the sum of the
---------------
Companies' cash, other current assets, accounts receivable, and
inventory, less (ii) the Companies' current liabilities, which amounts
described in clauses (i) and (ii) shall be calculated as follows:
----------- ----
Item Amount or Formula for Determining
---- ---------------------------------
Cash $225,000
Other current assets $115,000
Accounts receivable The product of (i) the Companies'
revenues for the 30 days immediately
preceding the Closing multiplied by (ii)
1.1667.
Inventory The product of (i) the Companies'
revenues for the 30 days immediately
preceding the Closing multiplied by (ii)
.32.
Current liabilities The product of (i) the
Companies' revenues for the 30 days
immediately preceding the Closing
multiplied by (ii) .80.
The Required Net Working Capital shall be computed by Newco
and provided to the Asset Sellers and Owners at the same time as it
delivers the Closing Date Balance Sheet to such parties. The accounts
receivable, inventory and current liabilities described above shall be
calculated from the books and records of the Companies as of the
Closing Date using the same accounting practices in calculating such
amounts as employed in the preparation of the Financial Statements. All
of the parties hereto shall cooperate in good faith with each other in
the preparation of the Required Net Working Capital. The Asset Sellers
and the Owners shall have access at all reasonable times to review work
papers, books and records relating to the preparation of the Required
Net Working Capital.
(c) The Asset Sellers and the Owners shall have the right to
dispute the calculation of the Closing Date Net Working Capital and
Required Net Working Capital by giving written notice of dispute to
Newco within 30 days after the Closing Date Net Working Capital and
Required Working Capital calculation has been given to such parties.
Such notice shall set forth in detail the reasons for the dispute and
the proposed adjustments to the Closing Date Net Working Capital and
the Required Working Capital. If the Asset Sellers and the Owners do
not provide a notice of dispute to Newco within such 30-day period in
accordance with the foregoing, the Closing Date Balance Sheet and
calculations of Closing Date Net Working Capital and Required Working
Capital as
17
<PAGE>
prepared by Newco shall become final and binding. If the Asset Sellers
and Owners provide notice of dispute to Newco within such 30-day period
in accordance with the foregoing, all parties shall endeavor in good
faith to promptly resolve the dispute. If the parties are unable to
reach agreement on all of the disputed items during such 30-day period,
then such dispute shall be referred to Newco's Accountant and the
Companies' Accountant, who shall endeavor in good faith to resolve such
dispute and whose joint determination shall be final, conclusive and
binding on the parties hereto. If Newco's Accountant and the Companies'
Accountant are unable to resolve such dispute within 15 days, then
Newco's Accountant and the Companies' Accountant shall mutually choose
the Third Accounting Firm to resolve such dispute, and the Third
Accounting Firm's determination of such dispute shall be final,
conclusive and binding on the parties hereto. Newco shall be
responsible for any fees and expenses of Newco's Accountant in
connection with services provided under this Section 2.7(c), and the
--------------
Companies shall be responsible for any fees and expenses of the
Companies' Accountant in connection with services provided under this
Section 2.7(c). The fees and expenses charged by any Third Accounting
--------------
Firm for services performed under this Section 2.7(c) shall be
--------------
apportioned between the Asset Sellers and Owners and Newco on the basis
of the determination of the Third Accounting Firm in relation to the
determinations by each of the Asset Sellers and Owners, on the one
hand, and Newco, on the other hand, as described in Section 2.5(f).
--------------
(d) If the Closing Date Net Working Capital, as finally
prepared and binding upon the parties in accordance with this Section
-------
2.7 is different from the Required Net Working Capital, then within 10
---
days after such determination, (i) Newco shall refund to the Asset
Sellers and the Owners an amount in cash equal to the amount by which
the Closing Date Net Working Capital exceeds the Required Net Working
Capital or (ii) the Asset Sellers and the Owners shall refund Newco an
amount in cash equal to the amount by which the Required Net Working
Capital exceeds the Closing Date Net Working Capital.
2.8. Allocation of Purchase Price. Schedule 2.8 sets forth the
------------
allocation of the Purchase Price and the Assumed Liabilities (to the extent
included in the sales price for federal income Tax purposes) among the Assets
and the Target Companies. Newco, PalEx Mexico, the Asset Sellers and the Owners
agree that they shall not take any position or action inconsistent with such
allocation in the filing of any income Tax returns.
2.9. Consent of Third Parties. This Agreement shall not constitute any
agreement to assign or transfer any Permit, instrument, contract, lease or other
agreement or arrangement or any claim, right or benefit arising thereunder or
resulting therefrom if an assignment or transfer or an attempt to make such an
assignment or transfer without the consent of a third party would constitute a
breach or violation thereof or affect adversely the rights of Newco, PalEx
Mexico or any Asset Seller thereunder; and any transfer or assignment to Newco
or PalEx Mexico by any Asset Seller of any interest under any such instrument,
contract, lease, Permit or other agreement or arrangement that requires the
consent of a third party shall be made subject to such consent or approval being
obtained. If any such consent or approval is not obtained on or prior to the
Closing Date, the Asset Sellers shall use all reasonable efforts to obtain any
such approval or
18
<PAGE>
consent as soon as reasonably possible after the Closing Date, and the Asset
Sellers will cooperate with Newco and PalEx Mexico in any lawful arrangement
(which may include Newco or PalEx Mexico acting as subcontractors of the Asset
Sellers) to provide that Newco and PalEx Mexico shall receive the interest of
the Asset Sellers in the benefits under any such instrument, contract, lease or
other agreement or arrangement, including performance by the Asset Sellers, as
agent, provided that Newco or PalEx Mexico, as the case may be, shall undertake
--------
to pay or satisfy the corresponding expenses and liabilities for the enjoyment
of such benefit to the extent Newco would have been responsible therefor
hereunder if such consent or approval had been obtained. Notwithstanding
anything to the contrary contained in this Agreement, the provisions of this
Section 2.9 shall not be deemed or construed as a waiver, or an acknowledgment
-----------
of satisfaction, by Newco, PalEx Mexico or PalEx of the conditions set forth in
ARTICLE VI.
----------
2.10. Closing. The payment of the Purchase Price, the transfer of title
to the Assets, the assumption of the Assumed Liabilities and the transfer of the
ownership interests of the Target Companies, and the consummation of the other
transactions contemplated by this Agreement (the "Closing") shall take place at
-------
the offices of PalEx, 6829 Flintlock Road, Houston, Texas, the business day
following the satisfaction of the conditions to Closing set forth in ARTICLE VI
----------
and ARTICLE VII or at such other time and date as Newco, PalEx Mexico, the Asset
-----------
Sellers and the Owners may mutually agree, which date is herein referred to as
the "Closing Date." The parties hereto shall endeavor in good faith to cause
------------
their respective conditions to Closing set forth herein to be satisfied, and the
Closing to occur, on or before August 31, 2000. Subject to Section 12.1, failure
------------
to consummate the transactions contemplated on or before August 31, 2000 or such
other date and time selected pursuant to this Section 2.10 shall not result in
------------
the termination of this Agreement and shall not relieve any party to this
Agreement of any obligation hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
AND THE ASSET SELLERS
Each Stockholder and each Asset Seller jointly and severally represents
and warrants to Newco, PalEx Mexico and PalEx as follows:
3.1. Due Organization and Qualification. Each Company is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of the state of its
organization, which form of organization and state of organization is set forth
for each Company on Schedule 3.1. Each Company is duly authorized and qualified
------------
to do business and to carry on its business in the places and in the manner now
conducted under all applicable Laws. Each Company has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is currently being conducted. Schedule 3.1 contains a list of
------------
all jurisdictions in which each Company is authorized or qualified to do
business. Complete and correct copies of the articles or certificate of
incorporation, limited liability company organizational documents, limited
partnership agreement and by-laws, as applicable and as amended, of each Company
have been provided to
19
<PAGE>
Newco. All the stock or ownership records and minute books of each Company have
been made available to Newco and are correct and complete in all material
respects.
3.2. Authorization; Non-Contravention; Approvals.
(a) Each Asset Seller has the requisite power and authority to
enter into this Agreement and to effect the transactions contemplated
hereby. The Owners have the full legal right, power and authority to enter
into this Agreement. The execution, delivery and performance of this
Agreement have been approved by all necessary action on the part of the
board of directors, managers, members, partners or stockholders of each
Company, as applicable, and by each Owner that is not an individual. No
additional proceedings on the part of any Asset Seller or any Owner are
necessary to authorize the execution and delivery of this Agreement or the
consummation by any Asset Seller or Owner of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each Asset Seller and each Owner, and, assuming the due authorization,
execution and delivery hereof by PalEx, Newco and PalEx Mexico, constitutes
a valid and binding agreement of each Asset Seller and each Owner,
enforceable against each Asset Seller and Owner in accordance with its
terms.
(b) The execution and delivery of this Agreement by the Asset
Sellers and the Owners do not, and the consummation by the Asset Sellers
and the Owners of the transactions contemplated by this Agreement will not,
violate or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute
a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Encumbrance upon any
of the assets of the Companies under any of the terms, conditions or
provisions of, (i) the articles or certificate of incorporation, limited
liability company organizational documents, partnership agreement or by-
laws, as applicable, of any Company, (ii) any Law applicable to any Owner,
any Company or any of the assets of any Company, or (iii) except as set
forth on 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 any Company or any
Owner is now a party or by which any Company or any asset of any Company
may be bound or affected.
(c) Except as set forth on Schedule 3.2 and as required under
------------
the HSR Act, 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 any Asset
Seller or any Owner or the consummation by any Asset Seller or any Owner of
the transactions contemplated hereby. Except as set forth on Schedule 3.2,
------------
none of the customer contracts or other material agreements to which any
Company is a party requires notice to, or the consent or approval of, any
third party for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement.
20
<PAGE>
3.3. Capitalization. The authorized and outstanding capital stock,
membership interests or partnership units, as applicable, of each Company is
asset forth on Schedule 3.3 (collectively, the "Company Stock"), all of which
------------ -------------
outstanding shares, membership interests, or partnership units, as applicable,
are owned beneficially and of record by the Owners or the Companies, as
respectively set forth on Schedule 3.3. The Owners hold, or prior to the
------------
Closing, will hold good and indefeasible title in the equity interests in the
Target Companies, free and clear of all Encumbrances other than Permitted
Encumbrances. Except as set forth on Schedule 3.3, no subscription, option,
------------
warrant, call, convertible or exchangeable security, other conversion right or
commitment of any kind exists which obligates any Company to issue any of its
capital stock, membership interest, or partnership unit, as applicable, or any
Owner or Company to transfer any of the Company Stock or equity interests in the
Target Companies, as the case may be.
3.4. Financial Statements.
(a) Attached hereto as Schedule 3.4 are complete and correct
------------
copies of the following financial statements:
(i) the unaudited combined statements of financial position
of the Companies as of December 31, 1997, 1998 and 1999
and the related combined statements of income and
statements of cash flows and owners' equity of the
Companies for the three-year period ended December 31,
1999 (collectively, the "Year-End Financial Statements");
-----------------------------
and
(ii) the unaudited combined balance sheets of the Companies as
of May 31, 2000 (the "Balance Sheet Date") and the
------------------
related combined statements of income and statements of
cash flows for the five-month period ended on the Balance
Sheet Date (collectively, the "Interim Financial
-----------------
Statements" and, together with the Year-End Financial
----------
Statements, the "Financial Statements").
--------------------
(b) The Year-End Financial Statements have been prepared from the
books and records of the Companies on the accrual basis in conformity with
the normal accounting practices of the Companies, applied on a consistent
basis, and present fairly in all material respects the combined financial
position and results of operations of the Companies as of the dates of such
statements and for the periods covered thereby. The Interim Financial
Statements have been prepared from the books and records of the Companies
on the accrual basis in conformity with the normal accounting practices of
the Companies, applied on a consistent basis, and present fairly in all
material respects the combined financial position of the Companies as of
the date of such statement. The books of account of the Companies 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
Companies have been properly recorded therein in all material respects.
21
<PAGE>
3.5. Liabilities and Obligations. Except as set forth in Schedule 3.5
------------
and Schedule 3.15, the Companies did not have at the Balance Sheet Date, nor
-------------
have they 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 (ii) that were incurred after the Balance
Sheet Date and were incurred in the ordinary course of business, consistent with
past practices and (b) liabilities and obligations that (i) are of a nature not
required by GAAP to be reflected in the Financial Statements, (ii) were incurred
in the normal course of business and (iii) are described on Schedule 3.5.
------------
3.6. Accounts and Notes Receivable. Schedule 3.6 sets forth an accurate
------------
list of the accounts and notes receivable of the Companies as of the Balance
Sheet Date and as of the close of business on December 31, 1999. Receivables
from and advances to employees, any Owner or holder of any equity interest in
any Company, and any entities or persons related to or Affiliated with any Owner
or other holder of an equity interest in any Company are separately identified
on Schedule 3.6. Schedule 3.6 sets forth an accurate aging of all accounts and
------------ ------------
notes receivable of the Companies as of the Balance Sheet Date, showing amounts
due in 30-day aging categories. The trade and other accounts receivable of the
Companies, including without limitation those set forth in the Interim Financial
Statements and those set forth on Schedule 3.6 as of the close of business on
------------
December 31, 1999, are bona fide receivables, were acquired in the ordinary
course of business, and are stated in accordance with GAAP. The allowance for
doubtful accounts included in the Interim Financial Statements or described on
Schedule 3.6 is sufficient to cover the uncollectible accounts receivable of the
------------
Companies.
3.7. Assets.
(a) Schedule 3.7 sets forth an accurate list as of the Balance
------------
Sheet Date of all (i) inventory of the Companies, and (ii) all
machinery and equipment of the Companies, excluding items of machinery
and equipment with a cost basis of less than $5,000 or that are leased
from third parties.
(b) Schedule 3.7 includes a complete and correct list of
------------
leases for all real property leased by any Company and descriptions of
all real property on which buildings, warehouses, workshops, garages
and other structures used in the operation of the Busi ness of such
Company are situated. True and complete copies of such leases have been
previously provided to PalEx. All leases set forth on Schedule 3.7 are
------------
in full force and effect and constitute valid and binding agreements of
the parties thereto and are enforceable in accordance with their
respective terms.
(c) Schedule 3.7 includes complete copies of all title reports
------------
and title insurance policies possessed by the Companies with respect to
assets of the Companies consisting of leased real property. The
Companies own no fee title to any real property.
22
<PAGE>
(d) Schedule 3.7 indicates any significant asset used in the
------------
operation of any Business that is currently owned by an Owner, holder
of any equity interest in any Company or Affiliates of any Company or
Owner.
(e) Except as specifically identified on Schedule 3.7, all of
------------
the tangible assets of the Companies, including, without limitation,
all the vehicles and other significant machinery and equipment of any
Company listed on Schedule 3.7, are in good working order and
------------
condition, ordinary wear and tear excepted, and have been maintained in
accordance with standard industry practices.
(f) Schedule 3.7 includes a summary description of all
------------
contractual commitments of any Company involving the opening of new
operations, expansion of existing operations or the acquisition of any
real property or existing business.
(g) Each Company has good title to its respective owned
assets, and the Companies hold their respective assets free and clear
of all Encumbrances, other than Permitted Encumbrances and the
Encumbrances set forth on Schedule 3.7.
------------
(h) Except for the Excluded Assets and as set forth on
Schedule 3.7, the assets of the Companies constitute all the assets
------------
used in, or reasonably necessary for, the operation of the Businesses
as conducted at the Balance Sheet Date and are either owned by a
Company or leased or licensed under valid and enforceable agreements.
3.8. Material Customers, Contracts and Bartering Commitments.
(a) Schedule 3.8 sets forth an accurate list of all customers
------------
representing 5% or more of the Companies' combined revenues for the
year ended December 31, 1999 and the five-month period ended on the
Balance Sheet Date (the "Material Customers").
------------------
(b) Schedule 3.8 sets forth an accurate list of all material
------------
executory contracts, commitments and similar agreements to which any
Company is currently a party or by which any of its assets are bound,
including, but not limited to:
(i) all customer contracts in excess of $10,000,
individually, or $25,000 in the aggregate;
(ii) contracts with any labor organizations;
(iii) employment agreements;
(iv) leases providing for annual rental payments in
excess of $25,000;
(v) loan agreements;
(vi) pledge and security agreements;
(vii) indemnity or guaranty agreements;
(viii) bonds;
(ix) notes and mortgages;
(x) joint venture or partnership agreements;
(xi) options to purchase real or personal property;
23
<PAGE>
(xii) agreements relating to the purchase or sale by any
Company of assets (other than agreements relating
to purchases or sales of inventory in the ordinary
course of business, consistent with past practices)
or securities for more than $5,000, individually,
or $10,000 in the aggregate;
(xiii) confidentiality agreements;
(xiv) noncompete or similar agreements; and
(xv) agreements under which any Company has any
indemnification obligation.
Prior to the date of this Agreement, each Company has made available to
Newco and/or PalEx complete and correct copies of all such written
agreements.
(c) Except to the extent set forth on Schedule 3.8, (i) no
------------
Material Customer has canceled or substantially reduced or is currently
attempting or, to the knowledge of the Companies or the Stockholders,
threatening to cancel or substantially reduce its purchases of any
Company's products or services, and (ii) each Company is in compliance
with all material commitments and obligations pertaining to it under
the agreements described in subsection (b) and is not in default under
--------------
any such agreement, and no notice of default has been received by any
Company with respect to any such agreement.
(d) No Company is a party to any governmental contracts
subject to price redetermination or renegotiation. No Company is
required to provide any bonding or other financial security
arrangements in any material amount in connection with any transactions
with any of its customers or suppliers.
(e) Schedule 3.8 sets forth a summary of the material terms of
------------
all material oral and all written bartering arrangements to which any
Company is a party. Each Company has a sufficient supply of uncommitted
inventory to fulfill its bartering obligations with third parties.
3.9. Permits. Schedule 3.9 contains an accurate list of all licenses,
------------
franchises, permits, transportation authorities and other governmental
authorizations ("Permits") held by each Company that are material to the conduct
-------
of its Business.
3.10. Environmental Matters. Except as set forth on Schedule 3.10: (a)
-------------
each Company has complied, and is in compliance with all Environmental Laws,
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Substances; (b) each 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 such Company where Hazardous Substances have been treated,
stored, disposed of or otherwise handled; (c) to the knowledge of the Companies
and the Stockholders, there have been no "releases" or threats of
24
<PAGE>
"releases" (as defined in any Environmental Laws) at, from, in or on any
property owned or operated by any Company except as permitted by Environmental
Laws; (d) there is no on-site or off-site location to which any Company has
transported or disposed of Hazardous Substances or arranged for the
transportation or disposal of Hazardous Substances, which is the subject of any
federal, state, local or foreign enforcement action or any other investigation
that could reasonably be expected to lead to any claim against 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) no Company has any contingent liability in connection with any release
or disposal of any Hazardous Substance into the environment.
3.11. Labor and Employee Relations. No Company is bound by or subject
to any arrangement with any labor union. No employees of any Company are
represented by any labor union or covered by any collective bargaining agreement
nor, to the Companies' and the Stockholders' knowledge, is any campaign to
establish such representation in progress. There is no pending or, to the
Companies' and the Stockholders' knowledge, threatened labor dispute involving
any Company and any group of its employees nor has any Company experienced any
labor interruptions over the past five years. Except as set forth on Schedule
--------
3.11, each Company considers its relationship with its employees to be good.
----
3.12. Insurance. Each Company has provided PalEx true and complete
copies of all insurance policies carried by such Company during the last three
years and all insurance loss runs or workmen's compensation claims received for
the past three policy years. All of such policies are "claims made" policies.
3.13. Compensation; Employment Agreements. Schedule 3.13 sets forth an
-------------
accurate schedule of each Company's officers and directors and each Company's
employees whose base compensation exceeds $40,000 per year, listing the rate of
compensation (and the portions thereof attributable to salary, bonus, benefits
and other compensation, respectively) of each such person as of (a) the Balance
Sheet Date and (b) the date hereof. No Company is a party with any officer,
director, stockholder, member or employee of any Company to any employment
agreement or similar arrangement containing "golden parachute," change of
control, or other similar provisions.
3.14. Employee Benefit Plans.
(a) Schedule 3.14 sets forth an accurate schedule of each
-------------
employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")(an
-----
"Employee Benefit Plan"), and deferred compensation arrangements
---------------------
sponsored, maintained or contributed to currently by any Company or any
ERISA Affiliate (each such plan and arrangement being herein referred
to as a "Plan"), together with true, complete and correct copies of
----
such Plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet
25
<PAGE>
Date. Except as set forth on Schedule 3.14, no 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," nor
does any Company or any ERISA Affiliate have any obligation to
contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation,
any individual retirement account or annuity, retiree medical benefits
or "excess benefit plan" (within the meaning of Section 3(36) of ERISA
or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "Employee Pension Benefit Plan"
-----------------------------
shall have the same meaning given that term in Section 3(2) of ERISA,
and the term "ERISA Affiliate" means any entity that is a member of the
---------------
same controlled group as any Company, as described in Section 414 of
the Internal Revenue Code of 1996, as amended (the "Code"). No Company
----
nor any ERISA Affiliate has sponsored, maintained or contributed to any
Plan pursuant to the provisions of any collective bargaining agreement
at any time during the preceding five years.
(b) Except as set forth therein, all Plans listed on Schedule
--------
3.14 are in compliance in all material respects with all applicable
----
provisions of ERISA, the Code and the regulations issued thereunder, as
well as with all other applicable federal, state and local statutes,
ordinances and regulations. All accrued contribution obligations of
each Company with respect to any Plan have either been fulfilled in
their entirety or are fully reflected in the Interim Financial
Statements of such Company.
(c) Each Plan that is intended to qualify under Section 401(a)
of the Code (a "Qualified Plan") has been determined by the Internal
--------------
Revenue Service to be so qualified, and copies of each such
determination letter is included as part of Schedule 3.14 hereof. Except
-------------
as disclosed on Schedule 3.14, all reports and other documents required
-------------
to be filed with any Governmental Authority or distributed to Plan
participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed.
True and complete copies of all such reports and other documents with
respect to the past five years have been provided to PalEx. None of the
Owners, any Plan or any Company has engaged in any transaction
prohibited under the provisions of Section 4975 of the Code or Section
406 of ERISA. No Plan has incurred, and no Company nor any ERISA
Affiliate has incurred, any liability for excise tax or penalty due to
the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation. There have been no terminations, partial
terminations or discontinuances of contributions to any such 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.
3.15. Litigation and Compliance with Law. Except as set forth in
Schedule 3.15, there are no claims, actions, suits or proceedings, pending or,
-------------
to the knowledge of the Companies and the Stockholders, threatened against or
affecting any Company, at law or in equity, or before or by any Governmental
Authority having jurisdiction over such Company. Except as set forth in Schedule
--------
3.15, no notice of any claim, action, suit or proceeding affecting or against
----
any
26
<PAGE>
Company, whether pending or threatened, has been received by any Company. Except
to the extent set forth on Schedule 3.15, each Company has complied, and is in
-------------
compliance, with all Laws the violation of which would affect the value or use
of the Assets.
3.16. Taxes. For purposes of this Agreement, the term "Taxes" shall
-----
mean all taxes, charges, fees, levies or other assessments including, without
limitation, income, gross receipts, excise, property, sales, withholding, social
security, unemployment, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States or any other Governmental Authority, whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest, fines, penalties or additional amounts attributable to or imposed
with respect to any such taxes, charges, fees, levies or other assessments.
Except as set forth on Schedule 3.16, each Company has timely filed all
-------------
requisite federal, state, local and other tax returns for all fiscal periods
ended on or before the Closing Date that were required to be filed before the
Closing Date, and has duly paid in full or made adequate provision in the
Financial Statements for the payment of all Taxes for all periods ending at or
prior to the Balance Sheet Date. There are no examinations in progress or claims
against any Company relating to Taxes payable by the Companies and no written
notice of any claim for Taxes payable by the Companies, whether pending or
threatened, has been received by any Company or any Owner. The amounts shown as
accruals for Taxes on the Interim 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 (i) any tax examinations, (ii)
extensions of statutory limitations and (iii) the federal, state and local Tax
returns of each Company for the last three fiscal years have been previously
provided to PalEx.
3.17. Absence of Changes. Since December 31, 1999, except as set
forth in Schedule 3.17 and the transactions contemplated by this Agreement, each
------------
Company has conducted its operations in the ordinary course and there has not
been:
(a) any material adverse change in the business, operations,
properties, condition (financial or other), assets, liabilities
(contingent or otherwise), or results of operations of the Companies,
taken as a whole;
(b) any damage, destruction or loss exceeding $10,000 (whether
or not covered by insurance) affecting the properties of the Companies
or the Businesses;
(c) any change in the authorized capital stock of any Company
or their respective outstanding securities or any change in any Owner's
ownership interests of any Company or any grant of any options,
warrants, calls, conversion rights or commitments;
(d) any increase in the compensation payable or to become
payable by any Company to any Owner or, except in the ordinary course
of business, any of its officers, directors, managers, employees,
consultants or agents;
(e) any work interruptions, labor grievances or employment
related claims filed of any character adversely affecting the
Businesses;
27
<PAGE>
(f) any sale or transfer, or any agreement to sell or
transfer, any material assets, properties or rights of any Company to
any person, including, without limitation, any Owner or his Affiliates,
if such sale or transfer is outside the ordinary course of business or
is for more than $25,000 and does not relate to sale of inventory in
the ordinary course of business;
(g) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to any Company involving more than $10,000
individually or $25,000 in the aggregate;
(h) any purchase or acquisition of, or agreement or plan to
purchase or acquire, any material property, rights or assets outside of
the ordinary course of business of any Company;
(i) any waiver of any material rights or claims of any
Company;
(j) any material breach, amendment or, except as contemplated
by Section 5.13, termination of any material contract, agreement,
------------
license, permit or other right to which any Company is a party or any
of its property is subject; or
(k) except as contemplated by Sections 5.12 and 5.13, any
------------- ----
material transaction by any Company outside the ordinary course of
business.
3.18. Accounts with Banks and Brokerages; Powers of Attorney. Each
Company has provided Newco and/or PalEx (a) the name of each financial
institution or brokerage firm in which such Company has accounts or safe deposit
boxes; (b) the names in which the accounts or boxes are held; (c) the type of
account and the cash, cash equivalents and securities held in such account as of
the date of this Agreement; and (d) the name of each person authorized to draw
thereon or have access thereto.
3.19. Absence of Certain Business Practices. No Company nor any of its
Affiliates has given or offered to give anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would constitute a violation of the Foreign
Corrupt Practices Act of 1977, as amended, or any similar law.
3.20. Competing Lines of Business; Related-Party Transactions. Except
as set forth in Schedule 3.20, neither any Stockholder or other holder of an
-------------
equity interest in any Company nor any other Affiliate of any Company owns,
directly or indirectly, any interest in, or is an officer, director, employee or
consultant of or otherwise receives remuneration from, any Business (excluding
for this purpose each Company) which is a competitor, lessor, lessee, customer
or supplier of the Business of any Company or which is a creditor or has other
contractual relationships with any Company.
28
<PAGE>
3.21. Intangible Property. Schedule 3.21 sets forth an accurate list of
-------------
all patents, patent applications, trademarks, service marks, trade names and
copyrights and other intangible property ("Intangible Property") owned or used
-------------------
by any Company. No Company has received notice of any infringement or claim of
infringement of the rights of others.
3.22. Disclosure. No representation or warranty of the Companies or the
Stockholders 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 IV
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
PalEx and Newco jointly and severally represent and warrant to the
Owners and Asset Sellers 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,
regulations, and ordinances of public authorities to carry on its business in
the places and in the manner now conducted. PalEx Mexico is a limited liability
company duly organized, validly existing and in good standing under the laws of
Mexico and is duly authorized and qualified under all applicable Laws to carry
on its business in the places and in the manner now conducted.
4.2. Authorization; Non-Contravention; Approvals.
(a) Each of PalEx, Newco and PalEx Mexico 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 all
requisite corporate action on the part of PalEx, Newco and PalEx
Mexico. This Agreement has been duly and validly executed and delivered
by PalEx, PalEx Mexico and Newco, and, assuming the due authorization,
execution and delivery by Asset Seller and the Owners, constitutes a
valid and binding agreement of PalEx, PalEx Mexico and Newco,
enforceable against PalEx, PalEx Mexico and Newco in accordance with
its terms.
(b) The execution and delivery of this Agreement by PalEx,
PalEx Mexico and Newco do not, and the consummation by PalEx, PalEx
Mexico 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, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the
properties or assets of PalEx, PalEx Mexico or Newco or any of its
subsidiaries under any of the
29
<PAGE>
terms, conditions or provisions of (i) the charter documents of PalEx,
PalEx Mexico or Newco, (ii) any Law applicable to PalEx, PalEx Mexico
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, PalEx Mexico or Newco is now a
party or by which PalEx, PalEx Mexico or Newco or any of its properties
or assets may be bound or affected.
(c) Except as required under the HSR Act and stock exchange
listing or similar agreements, and notice filing requirements under
German securities Laws and the 1934 Act, 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, PalEx Mexico and Newco or the
consummation by PalEx, PalEx Mexico and Newco of the transactions
contemplated by this Agreement.
4.3. IFCO Ordinary Shares. The IFCO Ordinary Shares to be issued
pursuant to Section 2.3 of this Agreement, when issued in accordance with the
-----------
terms of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. The issuance of IFCO Ordinary Shares in accordance with the terms
hereof will transfer to the respective Owners and Asset Sellers valid title to
such IFCO Ordinary Shares, free and clear of all liens, encumbrances and claims
of every kind except for any created by the Asset Sellers and Owners. As soon as
reasonably practicable after the Closing Date, IFCO Ordinary Shares will be
approved for trading on the Amtlicher Handel SMAX segment of the Frankfurt Stock
Exchange and the Nasdaq National Market.
4.4. Litigation. There are no suits, actions, or legal, administrative,
arbitration or other proceedings or, to PalEx's knowledge, governmental
investigations against PalEx or IFCO and its subsidiaries pending or, to PalEx's
knowledge, threatened, which (a) if determined adversely to PalEx or IFCO, could
reasonably be expected to result in any adverse change in the business,
operations, properties, condition (financial or other), assets, liabilities
(contingent or otherwise), results of operations or prospects of PalEx or IFCO
and its subsidiaries, taken as a whole, or (b) seek to prevent the consummation
of the transactions contemplated hereby.
4.5. Absence of Changes. Since March 31, 2000, there has not been any
material adverse change in the business, operations, properties, condition
(financial or otherwise), assets, liabilities (contingent or otherwise), or
results of operations of IFCO.
4.6. No Violation of Law. Neither IFCO, PalEx nor Newco is in violation
of, nor has either of them been given notice or been charged with any violation
of, any Law, except to the extent any such violation would not have a adverse
effect on the businesses, financial condition or results or operation of IFCO,
PalEx or either of their subsidiaries, taken as a whole.
4.7. Disclosure. PalEx has fully provided the Asset Sellers and Owners
or their representatives with all the information that they have requested in
analyzing whether to consummate the transactions contemplated hereby, including,
without limitation, IFCO's Annual Report on Form 20-F for the year ended
December 31, 1999 and its Quarterly Report on Form 6-
30
<PAGE>
K for the quarter ended March 31, 2000. None of the information so provided nor
any representation or warranty of PalEx or Newco 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. Access to Information.
(a) Until the Closing, the Asset Sellers shall, and the Owners
shall cause the Companies to:
(i) furnish to Newco and its employees, officers,
accountants, attorneys, agents, and other authorized
representatives ("Newco's Representatives") all
-----------------------
financial, operating and other data and information
concerning the Companies, the Assets and the
Businesses as Newco or Newco's Representatives shall
from time to time reasonably request;
(ii) afford Newco and Newco's Representatives reasonable
access to the offices, properties, books, records,
contracts, and documents of the Companies during
ordinary business hours; and
(iii) give Newco and Newco's Representatives the
opportunity to ask questions of, and receive answers
from, authorized representatives of the Companies
and its customers, suppliers and banks and similar
financial institutions, provided neither Newco nor
Newco's Representatives will contact any customer,
supplier, bank or financial institution of the
Companies prior to the Closing without the prior
consent of the Companies, which consent will not be
unreasonably withheld.
(b) No investigations by Newco or Newco's Representatives
shall reduce or otherwise affect the obligations or liabilities of the
Asset Sellers and Owners with respect to any representations,
warranties, covenants, or agreements made herein or in any document
contemplated hereby and delivered in connection with the transactions
contemplated by this Agreement. The Asset Sellers and Owners will
cooperate, and cause the Companies to cooperate, with Newco and Newco's
Representatives in the preparation of any documents or other materials
that may be required by any governmental or regulatory agency to
effectuate the consummation of the transactions contemplated by this
Agreement.
31
<PAGE>
5.2. Conduct of Operations Pending Closing. From the date hereof
until the Closing, except as otherwise expressly permitted or contemplated by
this Agreement, the Asset Sellers shall, and the Owners shall cause the
Companies to:
(a) conduct the operations of the Businesses only in the
usual, regular and ordinary manner and use their commercially
reasonable efforts to maintain and, except as contemplated in Sections
--------
5.12 and 5.13, preserve the present business organization of the
---- ----
Businesses intact and to keep available the services of the Businesses'
present officers and employees and preserve the present relationships
of the Businesses with suppliers, customers and other persons or
entities having business relations with the Companies;
(b) maintain the Companies' books, accounts, and records
relating to the Businesses on a basis consistent with past practices
and in a businesslike manner in accordance with sound commercial
practice, and will not institute or introduce any new methods of
purchase, sale, lease, management, accounting, billing, or operation
relating to Businesses that are not consistent with their past
practices;
(c) not increase the compensation payable or to become payable
to any officer, employee, or agent of the Companies, including, without
limitation, any stockholder or any relatives or Affiliates of any
stockholder, or change any insurance, pension, or other Employee
Benefit Plan applicable to employees of the Companies, or, except in
the ordinary course of business consistent with past practices, pay any
commission or bonus to any of such officers, employees, or agents,
including, without limitation, any stockholder or any relatives or
Affiliates of any stockholder, except for changes in compensation paid
to employees who are not stockholders or relatives or Affiliates of
stockholders, provided such changes and bonuses are consistent with
past practices of the Companies and provided Newco is advised of such
changes or bonuses in advance;
(d) not incur or agree to incur any obligation or liability
relating to the assets of the Companies or the Businesses (whether
absolute, accrued, contingent or otherwise), other than working capital
indebtedness and accounts payable incurred in the ordinary course of
business consistent with past business practices;
(e) not create, assume or permit to exist any Encumbrances
upon any of its assets other than Permitted Encumbrances and the
Encumbrances described in Schedule 3.7;
------------
(f) not sell, assign, lease, or otherwise transfer or dispose
of any Assets, except for sales of inventory in the ordinary course of
business, consistent with past business practices, and except as
contemplated in Section 5.12;
------------
(g) not incur any capital expenditures relating to the
Business or purchase any capital assets in excess of $10,000,
individually, or $25,000 in the aggregate;
32
<PAGE>
(h) not enter into any other contract or commitment or engage
in any other transaction relating to the Businesses that is not in the
usual and ordinary course of the Businesses consistent with past
practices, except as contemplated in Sections 5.12 and 5.13;
------------- ----
(i) maintain all tangible assets in good operating order,
condition and repair, ordinary wear and tear excepted and except for
tangible assets described in the Schedules hereto as being defective or
not in working condition;
(j) maintain in full force and effect insurance coverage
relating to the Businesses and the assets of the Companies
substantially equivalent to the coverage provided by the policies of
insurance described in Section 3.12;
------------
(k) not declare or pay a dividend or make a distribution of
any monies, properties or assets to stockholders to the extent such
dividend or distribution would cause the Closing Date Net Working
Capital to be less than the Required Working Capital;
(l) comply in all material respects with all Laws applicable
to them and to the conduct of their businesses;
(m) not incur or agree to incur any trade debt to any vendor
or liability for borrowed money outside of the ordinary course of
business;
(n) not make any loans or advances to or enter into any
agreements with any Affiliate or Owner; and
(o) not take any other action that would cause or permit the
representations and warranties of the Stockholders made in this
Agreement to be inaccurate at the time of Closing or preclude the
Stockholders from making such representations and warranties at and as
of the time of the Closing.
5.3. Consents. The Owners shall use their commercially reasonable
efforts to obtain prior to the Closing all consents necessary for the
consummation of the transactions contemplated by this Agreement. The Owners
hereby consent to the transactions contemplated in this Agreement and waive any
consent requirements set forth in any shareholder or similar agreements to which
they are parties.
5.4. Legal Opinion. At the Closing, the Asset Sellers and the Owners
shall cause their legal counsel, Porter & Hedges, L.L.P. and Jackson & Kelly
PLLC, to deliver to Newco, PalEx and IFCO the legal opinions set forth on
Exhibit 5.4, the form of which legal opinions shall be otherwise acceptable to
-----------
Newco, PalEx and IFCO.
33
<PAGE>
5.5. Employment Agreements; Participation in Senior Management.
(a) At the Closing, PalEx and each of Craig Chambers, Charles
Davidson, John Maclay, and Jim Murphy (collectively, the "Management
----------
Stockholders") shall enter into an Employment Agreement in
------------
substantially the form of Exhibit 5.5, which Employment Agreement shall
-----------
provide for the Management Stockholders to be employees of Newco
(collectively, the "Employment Agreements").
---------------------
(b) For the lesser of (i) two years after the Closing Date and
(ii) the last date on which any Management Stockholder is employed by
Newco, PalEx or any Affiliate of PalEx, the Management Stockholders
shall be entitled to designate one Management Stockholder who is
employed by Newco, PalEx or any Affiliate of PalEx to be a member, and
attend meetings, of IFCO's North American senior management team.
5.6. Release From Guarantees. Each of PalEx and Newco shall use its
commercially reasonable efforts to have each Stockholder released from the
personal guarantees of Assumed Liabilities, each of which guarantees is
identified in Schedule 5.6. PalEx and Newco hereby agree to indemnify each
------------
Stockholder and hold him harmless for any amounts that he is required to pay
under such personal guarantees after the Closing.
5.7. Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of
the parties hereto will use its commercially reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its commercially reasonable efforts to obtain all necessary or
appropriate waivers, consents or approvals of third parties required in order to
preserve material contractual relationships of the Companies, all necessary or
appropriate waivers, consents and approvals to effect all necessary
registrations, filings and submissions and to lift any injunction or other legal
bar to the transactions contemplated by this Agreement (and, in such case, to
proceed with the transactions contemplated by this Agreement as expeditiously as
possible).
(b) Without limitation of the foregoing, to the extent required,
each of the Asset Sellers, Owners, Newco, PalEx, and PalEx Mexico undertakes and
agrees to file as soon as practicable after the date hereof (i) a Notification
and Report Form under the HSR Act with the U.S. Federal Trade Commission and the
Antitrust Division and (ii) such other notices and filings as may be required
pursuant to other applicable Laws. Each of the Asset Sellers, Owners, Newco,
PalEx and PalEx Mexico will (y) use its commercially reasonable efforts to
comply as expeditiously as possible with all lawful requests of the FTC or the
Antitrust Division, for additional information and documents and (z) not extend
any waiting period under the HSR Act or enter into any agreement with the FTC or
the Antitrust Division not to consummate the transactions contemplated by this
Agreement, except with the prior written consent of the other parties to this
Agreement.
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5.8. Future Cooperation; Tax Matters.
(a) The Owners, the Asset Sellers, Newco, PalEx, and PalEx
Mexico shall each deliver or cause to be delivered to the other
following the Closing such additional instruments as the other may
reasonably request for the purpose of fully carrying out this
Agreement. The Asset Sellers and Owners will cooperate in all
reasonable respects and use their commercially reasonable efforts to
have the present officers, directors and employees of the Companies
cooperate in all reasonable respects with PalEx, PalEx Mexico and/or
Newco at and after the Closing in furnishing information, evidence,
testimony and other assistance in connection with any actions,
proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing. The Asset
Sellers shall retain liability for all Taxes that are not included in
the Assumed Liabilities, including, without limitation, all income,
sales or transfer Taxes, if any, resulting from sale of the Assets
pursuant to, or other transactions contemplated by, the terms of this
Agreement.
(b) The parties acknowledge that the transfer of the ownership
interests in the Target Companies will terminate the taxable year of
each Target Company under section 708 of the Code. The Owners will be
liable and obligated for preparing and timely filing each Target
Company's U.S. federal income tax return on IRS Form 1065 for each
Target Company's Tax year that terminates as a result of such transfer.
The Owners will notify PalEx prior to the filing such Tax returns and,
at PalEx's election, shall include an election under section 754 of the
Code with its Tax return on Form 1065. The Owners will complete the
election in accordance with Treas. Reg. ss.1.754-1(b) and otherwise
comply with all requirements for a timely and proper election,
including, without limitation, filing each Target Company's return and
election not later than the time prescribed by paragraph (e) of Treas.
Reg. ss.1.6031-1, and will provide assurance reasonably satisfactory to
Newco that they have done so and, at Newco's request, copies of such
returns. In addition, the Owners will be responsible and liable for
preparing all Tax returns of each Target Company for Taxes of any kind
for all periods that terminate on or prior to the Closing Date. At the
request of the Owners, assuming such Tax returns and the Taxes
reflected therein have been calculated on a reasonable basis, Newco
shall cause each Target Company to (i) execute all such Tax returns on
behalf of each Target Company, and (ii) timely pay any Taxes due on
such Target Company's Tax return to the extent such Taxes would be an
Assumed Liability if such Target Company was an Asset Seller.
(c) Newco shall permit the Owners and their counsel to conduct
and settle, at their own expense, any audit or examination of any
Target Company's Tax returns to the extent such returns relate to
periods on or before the Closing Date; provided, however, that the
-------- -------
Owners shall promptly notify Newco and PalEx in writing of the issues
in such audit or examination that could reasonably be expected to
affect Newco or its Affiliates. Newco shall cause each Target Company
and its employees to cooperate with the Owners in all commercially
reasonable respects in providing access to, and copies of, such Target
Company's books, records or supporting information; provided, however,
-------- -------
that the
35
<PAGE>
Owners shall be liable for the payment of a reasonable per diem charge
for the time spent in providing such cooperation. Newco shall not
permit the Target Companies to destroy or discard any of the Target
Companies' books or records within the applicable statutory period for
retaining such books or records for Tax purposes. The Owners shall not
conduct or settle any such audit or examination in any manner that
could reasonably be expected to adversely affect PalEx, Newco or the
Target Companies after the Closing without the prior written consent of
PalEx.
(d) Each of PalEx, PalEx Mexico, and Newco will cooperate in
all commercially reasonable respects with the Asset Sellers and the
Owners in the preparation of all tax returns covering the period from
the beginning of the Companies' current tax years through the Closing.
In addition, PalEx, PalEx Mexico and Newco will provide the Asset
Sellers and Owners with access to such of its books and records as may
be reasonably requested by the Asset Sellers and Owners in connection
with federal, state and local Tax matters relating to the Companies and
periods ending on or prior to the Closing Date.
(e) The income Tax returns of each Target Company for the
period ended on the Closing Date shall include income through the end
of the Closing Date.
5.9. Expenses. PalEx, PalEx Mexico or Newco shall pay the fees,
expenses and disbursements of PalEx, PalEx Mexico and Newco and their respective
agents, representatives, accountants and counsel incurred in connection with the
execution, delivery and performance of this Agreement and any amendments hereto
and the consummation of the transactions contemplated hereby. The Owners and the
Asset Sellers will pay their respective fees, expenses and disbursements and
those of the Companies and the Owners' respective agents, representatives,
financial advisors, accountants (excluding the fees and expenses of Arthur
Andersen LLP's audit of the Financial Statements) and counsel incurred in
connection with the execution, delivery and performance of this Agreement and
any amendments hereto and the consummation of the transactions contemplated
hereby. PalEx, PalEx Mexico and Newco shall be liable for (a) the filing fees in
connection with the filing a Notification and Report Form under the HSR Act with
the U.S. Federal Trade Commission and the Antitrust Division, and (b) the fees
and expenses of Arthur Andersen LLP in connection with the audit of the
Financial Statements.
5.10. Repayment of Related Party Indebtedness. At or prior to the
Closing, the Owners shall repay the Companies all advances to or receivables
from any Owner. At the Closing, Newco shall repay the indebtedness for borrowed
money as described on Schedule 3.8(b)(v).
------------------
5.11. Notification of Certain Matters. Each of the Asset Sellers and
the Owners, on one hand, and Newco, PalEx Mexico, and PalEx, on the other,
agrees to give prompt notice to each other of, and to use their respective
commercially reasonable efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur, or the impending or threatened occurrence or
failure to occur, of any event whose occurrence or failure to occur would be
likely to cause any
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of its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing and (b) any material failure on its part to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder.
5.12. Formation of Target Companies. The Owners hereby covenant and
agree as follows:
(a) Prior to the Closing, (i) National Pallet, LLC will form
and organize a wholly owned subsidiary, NP LLC, (ii) National Pallet -
Cincinnati, LLC will form and organize a wholly owned subsidiary, NP
Cincinnati, and (iii) National Pallet - Louisiana, L.P. will form and
organize a wholly owned subsidiary, NP Louisiana (each such parent
company, a "Parent Company" and collectively, the "Parent Companies").
-------------- ----------------
(b) Prior to the Closing, each Target Company will be
qualified to conduct business in each foreign jurisdiction in which its
Parent Company is qualified.
(c) Prior to the Closing, each Parent Company will contribute
all of its assets and liabilities (excluding the Chep Agreements, but
including normal course receivables and payables arising under such
agreements that are reflected in the Closing Date Net Working Capital)
to its respective Target Company in exchange for 100% of the limited
liability company interests in such Target Company, and notwithstanding
any other provision hereof, the parties agree that such contribution
shall not constitute or cause a breach of any of the provisions hereof.
(d) Notwithstanding anything to the contrary herein, no Parent
Company shall contribute and no Target Company shall receive or hold
any Excluded Asset or assume or be liable for any Excluded Liability.
(e) Prior to the Closing, each Parent Company will dividend
its membership interest in each Target Company to the equity owners of
such Parent Company pro rata based on their ownership of such Parent
Company, and thereupon such Target Companies shall constitute
"Companies" for all purposes of this Agreement.
5.13. Chep Agreements. Promptly following the date of this Agreement,
the Asset Sellers shall, and the Owners shall cause the Companies to, provide
Chep with notice of termination of all their agreements with Chep (the "Chep
----
Agreements") in accordance with their respective terms. The Asset Sellers shall,
----------
and the Owners shall cause the Companies to, use their commercially reasonable
efforts to negotiate an agreement with Chep respecting the post
notice/pre-termination transition of services under the Chep Agreements. To the
extent such agreements have advance notice requirements for such terminations to
be effective without liability to the Companies and to the extent such advance
notice periods have not expired as of the Closing Date, then at the request of
the Companies, Newco shall, and PalEx shall cause Newco to, (a) provide the
Companies or their successors the use of assets, employees and administrative
services reasonably necessary for such parties to perform their obligations
under
37
<PAGE>
their Chep Agreements for the remainder of the advance notice periods, (b)
provide the use of such assets, employees and administrative services to the
Companies or their successors at Newco's and PalEx's cost, which cost shall
include allocations of corporate overhead to the same extent such overhead is
allocated to PalEx subsidiaries, and (c) bear the operating costs of performing
services for Chep during the remainder of the advance notice periods; provided,
--------
however, that notwithstanding the foregoing, nothing herein shall be deemed or
-------
construed to provide for the assumption of, and neither PalEx, Newco nor any of
their Affiliates shall assume, any liability or obligation, arising or relating
to the Chep Agreements or the termination of such agreements other than an
obligation to fund operating expenses during the advance notice periods
remaining under such agreements as of the Closing Date and except as otherwise
expressly included within Assumed Liabilities.
5.14. Employee Matters.
(a) Upon the Closing, except with respect to the Management
Stockholders, Newco will offer to employ each of the Companies'
employees (the "Continuing Employees") on substantially the same terms
--------------------
as such employees were employed by the Companies immediately prior to
the Closing Date. Notwithstanding the foregoing or anything to the
contrary contained in this Agreement, nothing herein shall be deemed or
construed as providing any Continuing Employee any entitlement to
continuing employment, and subject to the terms of any employment
agreements being assumed by Newco in accordance with the terms of this
Agreement, all the Continuing Employees shall be classified as
"employees at will."
(b)(1) Effective as of the Closing Date, the Companies shall
cause each of the Continuing Employees to have a fully nonforfeitable
right to the Continuing Employee's account balance under the 401(k)
plan in which such Company was an adopting employer as of the Closing
Date (the "Companies' 401(k) Plan"). PalEx shall take all action
----------------------
necessary and appropriate to extend coverage, effective as of the
Closing Date, under its 401(k) Plan ( "PalEx's Retirement Plan") to the
-----------------------
Continuing Employees having account balances under the Companies'
401(k) Plan as of the Closing Date. Such Continuing Employees shall be
credited under PalEx's Retirement Plan, for eligibility and vesting
purposes, with the service credited under the terms of the Companies'
401(k) Plan. The Target Companies and Owners shall provide PalEx with
all such information as is necessary for PalEx to carry out its
obligations under the foregoing sentence. The Target Companies and
Owners shall cause to be made any contributions that are required under
the Companies 401(k) Plan for the period prior to the Closing Date, and
PalEx shall have no responsibility or liability therefor. Each
Continuing Employee shall be permitted to make a lump sum withdrawal of
his or her account balance under the Companies' 401(k) Plan to the
extent permitted under the Code. PalEx shall cause PalEx's Retirement
Plan to accept any direct rollovers with respect to Continuing
Employees from the Companies' 401(k) Plan to PalEx's Retirement Plan.
(2) PalEx agrees that the Continuing Employees and their
dependents who are eligible to participate in the Companies' group
medical and dental benefit plans as of the
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<PAGE>
Closing Date shall be provided by PalEx with coverage under group
medical and dental plans on the same terms and conditions under
coverage provided for similarly situated PalEx employees (collectively
referred to as "PalEx's Health Plans"). Any waiting periods and pre-
--------------------
existing condition provisions may be imposed under PalEx's Health Plans
with respect to such Continuing Employees and their eligible dependents
only to the extent that such waiting periods and pre-existing condition
provisions could have been imposed on such persons under the similar
plans maintained by the Companies as in effect immediately prior to the
Closing Date.
(c)(1) PalEx agrees that all accrued service credit of a
Continuing Employee with the Companies' shall continue to be recognized
by PalEx for all employee benefit purposes.
(2) The Companies and PalEx shall cooperate with each other
in all commercially reasonable respects relating to any actions to be
taken pursuant to this Section 5.14.
------------
(3) PalEx will cause Newco to permit Continuing Employees
to schedule and take accrued and earned but unused vacation days with
pay, in accordance with the applicable policies of PalEx as in effect
as of the Closing Date. Neither PalEx nor Newco shall, however, be
responsible or liable for any liability or obligation of the Companies
to Continuing Employees for pay in lieu of unused vacation time.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF NEWCO, PALEX MEXICO AND PALEX TO
CONSUMMATE TRANSACTIONS
The obligations of Newco, PalEx Mexico and PalEx to close the
transactions contemplated by this Agreement at the Closing is, at the option of
Newco, PalEx Mexico and PalEx, subject to the satisfaction on or before the
Closing Date of the conditions set forth below, any of which may be waived by
Newco, PalEx Mexico and PalEx in writing; provided, however, Newco's, PalEx
-------- -------
Mexico's and PalEx's election to proceed with the Closing shall not be deemed a
waiver of any breach of any representation, warranty or covenant herein, whether
or not known to Newco, PalEx Mexico or PalEx or existing on the Closing Date,
and such action shall not prejudice Newco's, PalEx Mexico's or PalEx's right to
recover damages for such breach in accordance with this Agreement.
6.1. Representations and Warranties. The representations and warranties
of the Asset Sellers and the Stockholders contained in this Agreement shall be
true and correct in all material respects on the date hereof, and shall be true
and correct on the Closing Date in all material respects with the same force and
effect as if they had been made on and as of the Closing Date.
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<PAGE>
6.2. Covenants. The agreements and covenants of the Asset Sellers and
the Owners to be performed or complied with on or before the Closing Date
pursuant to this Agreement shall have been performed or complied with by them in
all material respects.
6.3. Material Adverse Change. No change having or reasonably expected
to have a material adverse effect shall have occurred in the Assets or in the
condition (financial or otherwise), business or operations of the Companies,
taken as a whole, since the Balance Sheet Date.
6.4. No Withdrawal of Audit Opinion. Arthur Andersen LLP shall not
have withdrawn or qualified its audit opinion relating to the Year-End Financial
Statements.
6.5. Lenders' Consent. The conditions to the consent of PalEx's
senior bank lenders to the transactions contemplated by this Agreement, a copy
of which consent is attached hereto as Exhibit 6.5, shall have been satisfied.
-----------
6.6. HSR Termination. The waiting period applicable to the consummation
of the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
6.7. Consents. PalEx shall have received evidence reasonably
satisfactory to it that each of the required consents described on Schedule 6.7
------------
have been obtained by the Companies.
6.8. Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of the transactions contemplated by this Agreement
shall have been entered and, on the Closing Date, there shall not be any pending
or threatened litigation in any court, or any proceeding by or before any
governmental commission, board or agency, with a view to seeking to restrain or
prohibit consummation of such transactions or in which divestiture, recission or
significant damages are sought in connection with such transactions and no
investigation by any governmental agency shall be pending or threatened that
might result in any such litigation or other proceeding.
6.9. Certificates. The Stockholders shall have delivered to PalEx one
or more certificates dated as of the Closing Date executed by the Stockholders
certifying to the satisfaction of the conditions set forth in Sections 6.1 and
------------
6.2 (the "Closing Certificate").
--- -------------------
6.10. Market Value of IFCO Ordinary Shares. The average U.S. dollar
closing price per share of IFCO Ordinary Shares as reported on Nasdaq for the 20
consecutive trading days ending three trading days before the Closing Date shall
not be greater than 120% of the Reference Price.
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<PAGE>
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE ASSET SELLERS AND OWNERS TO
CONSUMMATE TRANSACTIONS
The obligation of the Asset Sellers and Owners to close the
transactions contemplated by this Agreement at the Closing is, at the option of
the Asset Sellers and Owners, subject to the satisfaction on or before the
Closing Date of the conditions set forth below, any of which may be waived by
the Asset Sellers and Owners in writing; provided, however, the election of the
Asset Sellers and Owners to proceed with the Closing shall not be deemed a
waiver of any breach of any representation, warranty or covenant herein, whether
or not known to the Asset Sellers and Owners or existing on the Closing Date,
and such action shall not prejudice the rights of the Asset Sellers and Owners
to recover damages for such breach in accordance with this Agreement.
7.1. Representations and Warranties. The representations and warranties
of Newco and PalEx contained in this Agreement shall be true and correct in all
material respects on the date hereof, and shall be true and correct on the
Closing Date in all material respects with the same force and effect as if they
had been made on and as of the Closing Date.
7.2. Covenants. The agreements and covenants of Newco, PalEx Mexico
or PalEx to be performed or complied with on or before the Closing Date pursuant
to this Agreement shall have been performed or complied with by them in all
material respects.
7.3. Material Adverse Change. No change having or reasonably expected
to have a material adverse effect shall have occurred in the condition
(financial or otherwise), business, or operations of IFCO.
7.4. HSR Termination. The waiting period applicable to the consummation
of the transactions contemplated by this Agreement under the HSR Act shall have
expired or been terminated.
7.5. Absence of Restraint. No order to restrain, enjoin or otherwise
prevent the consummation of the transactions contemplated by this Agreement
shall have been entered and, on the Closing Date, there shall not be any pending
or threatened litigation in any court, or any proceeding by or before any
governmental commission, board or agency, with a view to seeking to restrain or
prohibit consummation of such transactions or in which divestiture, recission or
significant damages are sought in connection with such transactions and no
investigation by any governmental agency shall be pending or threatened that
might result in any such litigation or other proceeding.
7.6. Certificates. Newco, PalEx Mexico and PalEx shall have delivered
to the Asset Sellers and Owners one or more certificates dated as of the Closing
Date duly executed by Newco, PalEx Mexico and PalEx certifying to the
satisfaction of the conditions set forth in Sections 7.1 and 7.2.
------------ ---
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<PAGE>
7.7. Market Value of IFCO Ordinary Shares. The average U.S. dollar
closing price per share of IFCO Ordinary Shares as reported on Nasdaq for the 20
consecutive trading days ending three trading days before the Closing Date shall
not be less than 80% of the Reference Price.
ARTICLE VIII
INDEMNIFICATION
The Asset Sellers, each Stockholder, PalEx, PalEx Mexico, and Newco
each make the following covenants:
8.1. General Indemnification by the Asset Sellers and the Stockholders.
Each Asset Seller and each Stockholder covenants and agrees that it or he will,
jointly and severally, indemnify, defend, protect and hold harmless PalEx, PalEx
Mexico and Newco, and their respective officers, directors, employees,
stockholders, agents, representatives and Affiliates from and against all Losses
incurred by any of such indemnified persons as a result of or arising from (a)
any breach of the representations and warranties of the Asset Sellers and the
Stockholders set forth herein or certified in any certificate delivered in
accordance with the terms hereof, (b) any Excluded Liability, (c) any liability
or obligation of any Target Company to the extent such liability or obligation
would be classified as an Excluded Liability if such Target Company were an
Asset Seller, (d) except to the extent specifically contemplated in Section
-------
5.13, the Companies' agreements with Chep or the termination of such agreements,
----
or (e) any breach or nonfulfillment of any covenant or agreement on the part of
any Asset Seller or Owner under this Agreement.
8.2. Indemnification by PalEx. PalEx covenants and agrees that it will
indemnify, defend, protect and hold harmless the Asset Sellers and the Owners,
and their respective officers, directors, employees, stockholders, agents,
representatives and Affiliates, at all times from and after the date of this
Agreement from and against all Losses incurred by such indemnified persons as a
result of or arising from (a) any breach of the representations and warranties
of PalEx, PalEx Mexico, and Newco set forth herein or certified in any
certificate delivered in accordance with the terms hereof, (b) any breach or
nonfulfillment of any covenant or agreement on the part of PalEx, PalEx Mexico,
or Newco under this Agreement, or (c) Newco's failure to timely perform or
otherwise discharge the Assumed Liabilities.
8.3. Third Person Claims. Promptly after any party hereto (hereinafter
the "Indemnified Party") has received notice of or has knowledge of any claim by
-----------------
a person not a party to this Agreement ("Third Person"), or the commencement of
------------
any action or proceeding by a Third Person, which the Indemnified Party believes
in good faith is an indemnifiable claim under this Agreement, the Indemnified
Party shall give to the party obligated to provide indemnification pursuant to
Section 8.1 or 8.2 hereof (hereinafter the "Indemnifying Party") written notice
----------- --- ------------------
of such claim or the commencement of such action or proceeding; provided,
--------
however, that the Indemnified Party's failure to timely provide such notice
-------
shall not affect its right to indemnification hereunder unless, and only to the
extent that, such failure materially
42
<PAGE>
prejudices the Indemnifying Party's ability to defend such claim. Such notice
shall state the nature and the basis of such claim and a reasonable estimate of
the amount thereof or a statement that the amount of such claim cannot be
reasonably estimated. The Indemnifying Party shall have the right to defend and
settle, at its own expense and by its own counsel, any such matter so long as
the Indemnifying Party pursues the same diligently and in good faith. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in all commercially
reasonable respects in the defense thereof and in any settlement thereof. Such
cooperation shall include, but shall not be limited to, furnishing the
Indemnifying Party with any books, records and other information reasonably
requested by the Indemnifying Party and in the Indemnified Party's possession or
control. After the Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted liability, and for
so long as the Indemnifying Party diligently pursues such defense, the
Indemnifying Party shall not be liable for any additional legal expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability; provided, however, that the Indemnified Party shall
-------- -------
be entitled, at its expense, to participate in the defense of such asserted
liability and the negotiations of the settlement thereof, and the Indemnifying
Party shall not settle any such Third Person claim without the consent of the
Indemnified Party unless the settlement thereof imposes no liability or
obligation on, and includes a complete release from liability of, the
Indemnified Party. If the Indemnifying Party desires to accept a final and
complete settlement of any such Third Person claim and the Indemnified Party
refuses to consent to such settlement, then the Indemnifying Party's liability
under this Section with respect to such Third Person claim shall be limited to
the amount so offered in settlement by said Third Person; provided, however,
-------- -------
that notwithstanding the foregoing, the Indemnified Party shall be entitled to
refuse to consent to any such proposed settlement and the Indemnifying Party's
liability hereunder shall not be limited by the amount of the proposed
settlement 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, and the Indemnifying Party shall immediately upon
request reimburse the Indemnified Party for the amount paid in such settlement
and any other liabilities or expenses paid or incurred by the Indemnified Party
in connection therewith.
8.4. Indemnification Deductible. Neither the Owners and the Asset
Sellers, on the one hand, nor PalEx and Newco, on the other hand, shall be
entitled to indemnification from the other under the provisions of Section
-------
8.1(a) or Section 8.2(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, $630,000.
8.5. Limitation Upon Indemnity; Satisfaction of Indemnification
Obligations. Notwithstanding anything to the contrary contained herein, the
aggregate indemnification obligation of the Asset Sellers and the Stockholders
under Section 8.1(a):
--------------
43
<PAGE>
(a) shall be limited to an aggregate amount of $31,500,000;
and
(b) may, at the option of the Asset Sellers and the
Stockholders, be satisfied in cash or by returning the IFCO Ordinary
Shares received pursuant to Section 2.3, which shares shall be credited
-----------
against such obligations at a per share price equal to the Reference
Price.
8.6. Indemnification for Negligence of Indemnitee. THE RIGHTS TO
INDEMNIFICATION UNDER THIS ARTICLE VIII INCLUDE RIGHTS TO INDEMNIFICATION FOR
------------
THE RESULTS OF AN INDEMNIFIED PARTY'S ACTUAL OR ALLEGED NEGLIGENCE RELATING TO
ANY DUE DILIGENCE INVESTIGATION BY SUCH PARTY OR THE FAILURE TO PERFORM SUCH
INVESTIGATION IN CONNECTION WITH THIS AGREEMENT, IF SUCH INDEMNIFIED PARTY WOULD
OTHERWISE BE ENTITLED TO INDEMNIFICATION HEREUNDER.
8.7. Reassignment of Accounts Receivable. In the event of a claim for
indemnification by PalEx, PalEx Mexico or Newco as result of a breach of the
representation regarding collectability of accounts receivable set forth in
Section 3.6, PalEx, PalEx Mexico, or Newco, as the case may be, shall assign or
-----------
reassign to the Asset Sellers and/or the Owners the account(s) receivable which
is subject to the claim for indemnification, and thereafter, such parties shall
have the right to collect such account(s) receivables in such manner as they
deem appropriate, provided such right shall not include the right to take any
--------
action in the name of Newco or the Businesses being acquired pursuant to this
Agreement and such parties shall not be entitled to take any action in the
capacity of an employee of Newco, PalEx or any Affiliate of PalEx.
8.8. Exclusive Remedy. The parties hereto agree that, notwithstanding
anything to the contrary contained herein, all claims arising as a result of
breaches of representations or warranties, or the failure to perform any
covenant or agreement, in this Agreement shall be made exclusively under, and be
subject to the provisions of, this ARTICLE VIII.
------------
ARTICLE IX
NONCOMPETITION COVENANTS
9.1. Prohibited Activities.
(a) Each Stockholder and Asset Seller will not for the longer
of (y) five years following the Closing Date and (z) one year following
such Stockholder's voluntary termination of his employment with Newco
or its Affiliates or the termination of such individual's employment
with Newco "with cause," as determined in accordance with the
respective individual's Employment Agreement, directly or indirectly,
for himself or on behalf of or in conjunction with any other person,
company, partnership, corporation or business of whatever nature:
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<PAGE>
(i) engage, as an officer, director, 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 175 miles of where any Company has a facility
or conducts or proposes to conduct business as of
the Closing Date or where Newco or an Affiliate of
Newco has a facility after the Closing that is,
within six months prior to the date of termination
of such Stockholder's employment, under such
Stockholder's supervision or managerial authority
(the "Territory"), provided the actions of the
--------- --------
Stockholders and Asset Sellers with respect to Chep
in accordance with Section 5.13 shall not be
------------
considered to be in violation of this Section 9.1;
-----------
(ii) directly or indirectly hire any person who is, at
that time, an employee of PalEx or any of its
subsidiaries or call upon any such person for the
purpose or with the intent of enticing such employee
away from or out of the employ of PalEx or any of
its 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 Companies or PalEx or
any of its subsidiaries within the Territory for the
purpose of soliciting or selling services or
products in a Competitive Business within the
Territory.
(b) Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit any Stockholder from acquiring, as a passive
investor with no involvement in the operations of the business, not
more than one percent of the capital stock of a Competitive Business
whose stock is publicly traded on a national securities exchange or the
Nasdaq National Market or over-the-counter.
9.2. Equitable Relief. Because of the difficulty of measuring economic
losses to PalEx, PalEx Mexico, and Newco as a result of a breach of the
foregoing covenant, and because of the immediate and irreparable damage that
could be caused to PalEx and Newco for which it would have no other adequate
remedy, each Asset Seller and Stockholder agrees that the foregoing covenant may
be enforced against it or him by PalEx, PalEx Mexico, or Newco by injunctions,
restraining orders and other equitable actions.
9.3. Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this ARTICLE IX impose a reasonable restraint on each
----------
Asset Seller and Stockholder in light of the activities of the Companies and
their Businesses on the date of the execution of this Agreement and the current
plans of the Companies.
45
<PAGE>
9.4. Severability; Reformation. The covenants in this ARTICLE IX 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 IX 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.
9.5. Material and Independent Covenant. Each Asset Seller and
Stockholder acknowledges that the agreements and the covenants set forth in this
ARTICLE IX are material conditions to PalEx's and Newco's agreements to execute
----------
and deliver this Agreement and to consummate the transactions contemplated
hereby. All of the covenants in this ARTICLE IX shall be construed as an
----------
agreement independent of any other provision in this Agreement.
ARTICLE X
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
10.1. Obligations of the Asset Sellers and Owners. Each Asset Seller
and Owner recognizes and acknowledges that in the past it and he had, currently
has, and in the future will have, access to certain confidential information
relating to the Businesses being conveyed to Newco and PalEx Mexico pursuant to
this Agreement and/or PalEx, such as lists of customers, operational policies,
and pricing and cost policies that are, and following the Closing will be,
valuable, special and unique assets of Newco, PalEx Mexico, and/or PalEx. Each
Asset Seller and Owner agrees that it and he will not use or disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose whatsoever, except as is required in the course of
performing his duties to Newco, PalEx Mexico, and/or PalEx, unless (a) such
information becomes known to the public generally through no fault of any Asset
Seller or Owner, or (b) disclosure is required by Law or the order of any
Governmental Authority, provided, that prior to disclosing any information
--------
pursuant to this clause (b) each Asset Seller and Owner, as applicable, shall,
----------
if possible, give prior written notice thereof to Newco, PalEx Mexico, and PalEx
and provide Newco, PalEx Mexico, and PalEx with the opportunity to contest such
disclosure. In the event of a breach or threatened breach by any Asset Seller or
Owner of the provisions of this Section, PalEx, PalEx Mexico and Newco shall be
entitled to an injunction restraining such Asset Seller or Owner from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting PalEx, PalEx Mexico, or Newco from pursuing
any other available remedy for such breach or threatened breach, including the
recovery of damages.
10.2. Equitable Relief. Because of the difficulty of measuring economic
losses as a result of the breach of the foregoing covenants, and because of the
immediate and irreparable damage that would be caused for which Newco, PalEx
Mexico, and/or PalEx would have no other adequate remedy, each Asset Seller and
Owner agrees that the foregoing covenants may be enforced against it and him by
injunctions, restraining orders and other equitable actions.
46
<PAGE>
10.3. Obligations of Newco and PalEx. PalEx and Newco hereby
acknowledge that prior to the Closing they are bound by the terms of a
confidentiality letter agreement with the Companies dated April 27, 2000.
ARTICLE XI
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
ON IFCO SYSTEMS ORDINARY SHARES
11.1. Compliance with Law. The Asset Sellers and Owners acknowledge
that the IFCO Ordinary Shares issued pursuant to the provisions of this
Agreement (the "Restricted Shares") will not be registered under the 1933 Act
-----------------
and therefore may not be resold without compliance with the 1933 Act. The
Restricted Shares are being or will be acquired by the Asset Sellers and Owners
solely for their own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of them in connection
with a distribution. The Asset Sellers and Owners covenant, warrant and
represent that none of the Restricted Shares will be, directly or indirectly,
offered, sold, hedged, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Act and the rules and regulations of the SEC. Notwithstanding the
foregoing, the Restricted Shares may be distributed by the Asset Sellers to the
Owners, provided each Owner provides PalEx and IFCO a written certification that
such Owner's representations set forth in this Section 11.1 and Section 11.3 are
------------ ------------
true as of the date of such distribution. Certificates representing the
Restricted Shares shall bear the following legend:
The ordinary 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
acceptable to issuer, is exempt from the registration
requirements of the Securities Act and such laws.
11.2. Restriction on Sale or Other Transfer of Restricted Stock.
(a) Each Asset Seller and Owner, other than the Farish
Stockholder, covenants, warrants and represents that none of the
Restricted Shares will be offered, sold, hedged, assigned, pledged,
hypothecated, transferred or otherwise disposed of during the two-year
period commencing on the Closing Date (the "Lockup Period") and
-------------
thereafter only after full compliance with all of the applicable
provisions of the 1933 Act and the rules and regulations of the SEC and
other applicable Laws, and, during the Lockup Period, neither such
Asset Seller nor Owner shall engage in put, call, short-sale, straddle
or similar transactions intended to reduce such Asset Seller's or
Owner's risk of owning the Restricted Shares. Certificates representing
the Restricted Shares shall bear the following legend in addition to
the legend under Section 11.1:
------------
47
<PAGE>
The shares represented by this certificate are subject
to a contractual restriction on transfer and may not
be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of during the period
of such contractual restriction without the prior written
consent of IFCO Systems N.V.
(b) The Farish Stockholder and Restricted Shares distributed
or distributable to the Farish Stockholder shall be subject to the
provisions of Section 11.2(a), except that the Lockup Period shall be a
---------------
one-year period commencing on the Closing Date.
11.3. Economic Risk; Accredited Investors. Each Asset Seller and Owner
is able to bear the economic risk of an investment in the IFCO Ordinary Shares
that may be acquired in accordance with the terms hereof and can afford to
sustain a total loss of such investment. Each Asset Seller and Owner 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 his acquisition of any IFCO Ordinary Shares in accordance with the terms
hereof. Each Asset Seller and Owner represents to IFCO, PalEx and Newco that it
or he is an "accredited investor," as that term is defined in Regulation D under
the 1933 Act, or that the issuance of IFCO Ordinary Shares to such Asset Seller
or Owner in connection with the consummation of the transactions contemplated by
this Agreement is otherwise exempt from the registration requirements of the
1933 Act and any applicable state securities Laws. Each Asset Seller and Owner
or its or his representatives have had an adequate opportunity to ask questions
and receive answers from the officers of IFCO, PalEx and Newco concerning, among
other matters, IFCO and PalEx, their management, their plans for the operation
of their businesses and potential additional acquisitions.
11.4. 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 IFCO
Ordinary Shares to the public without registration, PalEx, PalEx Mexico, and
Newco agree to cause IFCO to use its commercially reasonable efforts to:
(a) make and keep public information (as such terms are
defined in Rule 144) regarding IFCO available;
(b) file with the SEC in a timely manner all reports and other
documents required of IFCO under the 1933 Act and the 1934 Act; and
(c) so long as the Farish Stockholder owns any Restricted
Stock during the two years following the Closing Date, furnish to the
Farish Stockholder upon written request a written statement by IFCO as
to its compliance with the reporting requirements of Rule 144, the 1933
Act and the 1934 Act, a copy of the most recent annual or quarterly
report of PalEx, and such other reports and documents so filed as the
Farish Stockholder may reasonably request in connection with a sale of
Restricted Stock under Rule 144.
48
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.1. Termination. The obligation to close the transactions
contemplated by this Agreement may be terminated by:
(a) mutual agreement of the parties hereto;
(b) any party hereto, if the conditions precedent to its
obligations to close such transactions have not been satisfied or
waived by it at the Closing or if the Closing has not occurred on or
before October 31, 2000, unless such failure of satisfaction or failure
to close is due to the failure or refusal of the terminating party to
perform or observe the covenants, agreements and conditions hereof to
be performed or observed by it at or before the Closing;
(c) Newco, if there has been a breach of the representations
or warranties of the Asset Sellers or the Stockholders in this
Agreement, or a breach of or failure by the Companies, the Owners, or
the Stockholders in the performance of their covenants to be performed
at or before the Closing, and if such breach has not been cured within
20 days after receipt of the notice thereof by the Companies, the
Owners, or the Stockholders, as the case may be; and
(d) the Asset Sellers and the Owners, if there has been a
breach of the representations or warranties of Newco, PalEx Mexico, and
PalEx in this Agreement, or a breach of or failure by Newco, PalEx
Mexico, or PalEx in the performance of its covenants to be performed at
or before the Closing, and if such breach has not been cured within 20
days after receipt of the notice thereof by PalEx or Newco, PalEx
Mexico, as the case may be.
12.2. 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, PalEx Mexico, and the Asset Sellers, and the heirs
and legal representatives of each Owner.
12.3. Entire Agreement. This Agreement (including the Schedules,
exhibits and annexes attached hereto), the confidentiality letter described in
Section 10.3, and the documents delivered pursuant hereto constitute the entire
------------
agreement and understanding among the Owners, the Asset Sellers, Newco, PalEx
Mexico, and PalEx and supersede any prior agreement and understanding relating
to the subject matter of this Agreement, including, without limitation, that
certain letter of intent dated June 22, 2000, by and among PalEx, the Companies
and the Stockholders, as amended or supplemented. This Agreement may be modified
or amended only by a written instrument executed by the Owners and the Asset
Sellers, Newco, PalEx Mexico and PalEx, acting through their respective
officers, duly authorized by their respective Boards of Directors.
49
<PAGE>
12.4. Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
12.5. Brokers and Agents. Each party represents and warrants that it
employed no broker or agent in connection with the transactions contemplated by
this Agreement. Each party agrees to indemnify each other party against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
12.6. Notices. All notices and communications required or permitted
hereunder shall be in writing and may be given by depositing the same in the
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt requested, or by delivering the same
in person to an officer or agent of such party, as follows:
(a) If to PalEx or Newco, addressed to them c/o PalEx, Inc.,
6829 Flintlock Road, Houston, Texas 77040, Attn: Edward Rhyne, Fax:
713.332.6146.
(b) If to the Stockholders, Owners and/or the Asset Sellers,
addressed as set forth on Schedule 12.6, with a copy (which shall not
-------------
constitute notice) to Richard L. Wynne, Porter & Hedges, L.L.P., 700
Louisiana, 34th Floor, Houston, Texas 77002, Fax: 713.226.0247.
or such other address as any party hereto shall specify pursuant to this Section
-------
12.6 from time to time.
----
12.7. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of Texas (without regard to its principles governing
conflicts of laws).
12.8. Survival of Representations and Warranties. The representations
and warranties set forth in ARTICLE III and ARTICLE IV shall survive the Closing
----------- ----------
until June 30, 2001 (the "Expiration Date"), except that the representations and
---------------
warranties set forth in Sections 3.7(g), 3.10, and 3.16 hereof shall survive
--------------- ---- ----
until the expiration of the applicable statutory limitations period for third
parties to assert claims against the Asset Sellers, Stockholders, Newco or PalEx
with respect to the matters covered in such Sections, which shall be deemed to
be the Expiration Date for such sections. The respective parties shall remain
liable after the Expiration Date for breaches of the representations and
warranties set forth in ARTICLE III and ARTICLE IV, provided such breaches are
----------- ----------
asserted in good faith by notice in writing to the alleged breaching party prior
to the Expiration Date. Notwithstanding anything to the contrary contained in
this Agreement, any party to this Agreement may assert claims based on fraud
during the applicable statutory limitations period.
12.9. 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
50
<PAGE>
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.
12.10. Time of Essence. Time is of the essence with respect to this
Agreement.
12.11. 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.
[The remainder of page intentionally left blank.]
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PALEX, INC.
By: /s/ Edward Rhyne
----------------------------------------------
Name: Edward Rhyne
Title: Vice President and General Counsel
TEXAS PALLET ACQUISITION, INC.
By: /s/ Edward Rhyne
----------------------------------------------
Name: Edward Rhyne
Title: Vice President
IFCO SYSTEMS DE MEXICO, S. DE R.L. DE
C.V.
By: /s/ Edward Rhyne
----------------------------------------------
Name: Edward Rhyne
Title: Manager
TEXAS PALLET, L.P.
By: /s/ Craig P. Chambers
----------------------------------------------
Name: Craig P. Chambers
Title: President of Interstate Pallet Holding
Company, Inc., general partner
INTERSTATE PALLET HOLDING COMPANY,
INC.
By: /s/ Craig P. Chambers
----------------------------------------------
Name: Craig P. Chambers
<PAGE>
Title: President
NATIONAL PALLET - OKLAHOMA LLC
By: /s/ John D. Maclay
----------------------------------------------
Name: John D. Maclay
Title: Manager
TEXAS PALLET HOLDING COMPANY, INC.
By: /s/ James J. Murphy IV
----------------------------------------------
Name: James J. Murphy IV
Title: President
TEXAS PALLET SALES COMPANY, L.P.
By: /s/ James J. Murphy IV
----------------------------------------------
Name: James J. Murphy IV
Title: President of Texas Pallet Holding
Company, Inc., general partner
TEXAS PALLET FREIGHT COMPANY, L.P.
By: /s/ James J. Murphy IV
----------------------------------------------
Name: James J. Murphy IV
Title: President of Texas Pallet Holding
Company, Inc., general partner
TEXAS PALLET RECOVERY, INC.
By: /s/ James J. Murphy IV
----------------------------------------------
Name: James J. Murphy IV
Title: President
<PAGE>
TEXAS PALLET DE MEXICO, S.A. DE C.V.
By: /s/ John D. Maclay
----------------------------------------------
Name: John D. Maclay
Title: attorney-in-fact for Charles M. Davidson
/s/ Craig P. Chambers
-------------------------------------------------
Craig P. Chambers, Individually
/s/ John D. Maclay, Jr., as attorney-in-fact
-------------------------------------------------
Charles M. Davidson, Individually
/s/ John D. Maclay, Jr.
-------------------------------------------------
John D. Maclay, Jr., Individually
/s/ James J. Murphy IV
-------------------------------------------------
James J. Murphy IV, Individually
THE ESTATE OF JOHN D. MACLAY
By: /s/ John D. Maclay
------------------------------------------
John D. Maclay, Executor
1999 CHAMBERS LIMITED PARTNERSHIP
By: /s/ Craig P. Chambers
----------------------------------------------
Name: Craig P. Chambers
Title: General Partner
<PAGE>
FARISH & FARISH LLC
By: /s/ H. S. Farish II
----------------------------------------------
Name: H. S. Farish II
Title: Member
<PAGE>
TABLE OF CONTENTS
ARTICLE I
---------
DEFINITIONS
-----------
1.1. Definitions........................................................................................2
-
1.2. Interpretation.....................................................................................8
-
ARTICLE II
----------
THE PLAN OF ACQUISITION
-----------------------
2.1. The Acquisition....................................................................................8
-
2.2. Excluded Assets...................................................................................10
--
2.3. Purchase Price....................................................................................11
--
2.4. Liabilities........................................................................................11
--
2.5. Contingent Purchase Price.........................................................................12
--
2.6. Conveyance Documents..............................................................................16
--
2.7. Post Closing Working Capital Adjustment...........................................................16
--
2.8. Allocation of Purchase Price......................................................................18
--
2.9. Consent of Third Parties..........................................................................18
--
2.10. Closing..........................................................................................19
--
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
--------------------------------------------------
AND THE ASSET SELLERS
---------------------
3.1. Due Organization and Qualification................................................................19
--
3.2. Authorization; Non-Contravention; Approvals.......................................................20
--
3.3. Capitalization....................................................................................21
--
3.4. Financial Statements..............................................................................21
--
3.5. Liabilities and Obligations.......................................................................22
--
3.6. Accounts and Notes Receivable.....................................................................22
--
3.7. Assets............................................................................................22
--
3.8. Material Customers, Contracts and Bartering Commitments...........................................23
--
3.9. Permits...........................................................................................24
--
3.10. Environmental Matters............................................................................24
--
3.11. Labor and Employee Relations.....................................................................25
--
3.12. Insurance........................................................................................25
--
3.13. Compensation; Employment Agreements..............................................................25
--
3.14. Employee Benefit Plans...........................................................................25
--
3.15. Litigation and Compliance with Law...............................................................26
--
3.16. Taxes............................................................................................27
--
3.17. Absence of Changes...............................................................................27
--
3.18. Accounts with Banks and Brokerages; Powers of Attorney...........................................28
--
3.19. Absence of Certain Business Practices............................................................28
--
3.20. Competing Lines of Business; Related-Party Transactions..........................................28
--
i
<PAGE>
3.21. Intangible Property..............................................................................29
--
3.22. Disclosure.......................................................................................29
--
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF PALEX AND NEWCO
-------------------------------------------------
4.1. Organization......................................................................................29
--
4.2. Authorization; Non-Contravention; Approvals.......................................................29
--
4.3. IFCO Ordinary Shares.............................................................................30
--
4.4. Litigation........................................................................................30
--
4.5. Absence of Changes................................................................................30
--
4.6. No Violation of Law...............................................................................30
--
4.7. Disclosure........................................................................................30
--
ARTICLE V
---------
CERTAIN COVENANTS
-----------------
5.1. Access to Information.............................................................................31
--
5.2. Conduct of Operations Pending Closing.............................................................32
--
5.3. Consents..........................................................................................33
--
5.4. Legal Opinion.....................................................................................33
--
5.5. Employment Agreements.............................................................................34
--
5.6. Release From Guarantees...........................................................................34
--
5.7. Agreement to Cooperate............................................................................34
--
5.8. Future Cooperation; Tax Matters...................................................................35
--
5.9. Expenses..........................................................................................36
--
5.10. Repayment of Related Party Indebtedness..........................................................36
--
5.11. Notification of Certain Matters..................................................................36
--
5.12. Formation of Target Companies....................................................................37
--
5.13. Chep Agreements..................................................................................37
--
5.14. Employee Matters.................................................................................38
--
ARTICLE VI
----------
CONDITIONS TO OBLIGATIONS OF NEWCO, PALEX MEXICO AND PALEX TO
-------------------------------------------------------------
CONSUMMATE TRANSACTIONS
-----------------------
6.1. Representations and Warranties....................................................................39
--
6.2. Covenants.........................................................................................39
--
6.3. Material Adverse Change...........................................................................40
--
6.4. No Withdrawal of Audit Opinion....................................................................40
--
6.5. Lenders' Consent..................................................................................40
--
6.6. HSR Termination...................................................................................40
--
6.7. Consents..........................................................................................40
--
6.8. Absence of Restraint..............................................................................40
--
6.9. Certificates......................................................................................40
--
6.10. Market Value of IFCO Ordinary Shares.............................................................40
--
ii
<PAGE>
ARTICLE VII
-----------
CONDITIONS TO OBLIGATIONS OF THE ASSET SELLERS AND OWNERS TO
------------------------------------------------------------
CONSUMMATE TRANSACTIONS
-----------------------
7.1. Representations and Warranties....................................................................41
--
7.2. Covenants.........................................................................................41
--
7.3. Material Adverse Change...........................................................................41
--
7.4. HSR Termination...................................................................................41
--
7.5. Absence of Restraint..............................................................................41
--
7.6. Certificates......................................................................................41
--
7.7. Market Value of IFCO Ordinary Shares..............................................................42
--
ARTICLE VIII
------------
INDEMNIFICATION
---------------
8.1. General Indemnification by the Asset Sellers and the Stockholders.................................42
--
8.2. Indemnification by PalEx..........................................................................42
--
8.3. Third Person Claims...............................................................................42
--
8.4. Indemnification Deductible........................................................................43
--
8.5. Limitation Upon Indemnity; Satisfaction of Indemnification Obligations............................43
--
8.6. Indemnification for Negligence of Indemnitee......................................................44
--
8.7. Reassignment of Accounts Receivable...............................................................44
--
8.8. Exclusive Remedy..................................................................................44
--
ARTICLE IX
----------
NONCOMPETITION COVENANTS
------------------------
9.1. Prohibited Activities.............................................................................44
--
9.2. Equitable Relief..................................................................................45
--
9.3. Reasonable Restraint..............................................................................45
--
9.4. Severability; Reformation.........................................................................46
--
9.5. Material and Independent Covenant.................................................................46
--
ARTICLE X
---------
NONDISCLOSURE OF CONFIDENTIAL INFORMATION
-----------------------------------------
10.1. Obligations of the Asset Sellers and Owners......................................................46
--
10.2. Equitable Relief.................................................................................46
--
10.3. Obligations of Newco and PalEx...................................................................47
--
ARTICLE XI
----------
FEDERAL SECURITIES ACT AND CONTRACTUAL RESTRICTIONS
---------------------------------------------------
ON IFCO SYSTEMS ORDINARY SHARES
-------------------------------
11.1. Compliance with Law..............................................................................47
--
11.2. Restriction on Sale or Other Transfer of Restricted Stock........................................47
--
11.3. Economic Risk; Accredited Investors..............................................................48
--
11.4. Rule 144 Reporting...............................................................................48
--
iii
<PAGE>
ARTICLE XII
-----------
MISCELLANEOUS
-------------
12.1. Termination......................................................................................49
--
12.2. Successors and Assigns...........................................................................49
--
12.3. Entire Agreement.................................................................................49
--
12.4. Counterparts.....................................................................................50
--
12.5. Brokers and Agents...............................................................................50
--
12.6. Notices..........................................................................................50
--
12.7. Governing Law....................................................................................50
--
12.8. Survival of Representations and Warranties.......................................................50
--
12.9. Exercise of Rights and Remedies..................................................................50
--
12.10. Time of Essence.................................................................................51
--
12.11. Reformation and Severability....................................................................51
--
iv
<PAGE>
SCHEDULES
---------
Title Sche. No.
----- ---------
Excluded Assets..............................................................................................2.2
---
Allocation of Consideration Payable at Closing...............................................................2.3
---
Contingent Purchase Price - Southwest Facilities to Transfer Newco...........................................2.5
---
Allocation of Purchase Price.................................................................................2.8
---
States of Incorporation/Jurisdictions for Conducting Business................................................3.1
---
Authorizations/Consents......................................................................................3.2
---
Capitalization and Stock Ownership...........................................................................3.3
---
Financial Statements.........................................................................................3.4
---
Liabilities and Obligations..................................................................................3.5
---
Accounts and Notes Receivable................................................................................3.6
---
Assets/Real Property/Condition of Assets/Liens/Assets Held By Affiliates.....................................3.7
---
Material Customers, Customers and Bartering Commitments......................................................3.8
---
Permits......................................................................................................3.9
---
Environmental Matters........................................................................................3.10
----
Labor and Employee Relations.................................................................................3.11
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Compensation.................................................................................................3.13
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Employee Benefit Plans.......................................................................................3.14
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Litigation and Compliance With Law...........................................................................3.15
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Taxes........................................................................................................3.16
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Absence of Changes...........................................................................................3.17
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Competing Lines of Businesses................................................................................3.20
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Intangible Property..........................................................................................3.21
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Stockholder Guarantees.......................................................................................5.6
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Required Consents............................................................................................6.7
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Addresses for Notices.......................................................................................12.6
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v
<PAGE>
EXHIBITS
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Title Exhibit No.
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Form of Legal Opinion........................................................................................5.4
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Form of Employment Agreements................................................................................5.5
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Copy of Consent of Lenders...................................................................................6.5
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vi