PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER dated as of March 3, 2005 ("Agreement"),
by and among, Envirokare Tech, Inc., a Nevada corporation ("Parent"), and
Envirokare Composite Corp., a Delaware corporation and wholly owned subsidiary
of Parent ("Merger Sub"), on the one hand, and Thermoplastic Composite Designs,
Inc., a Florida corporation ("TCD"), Dale Polk, Sr., an individual ("Polk Sr."),
and Dale E. Polk, Jr., an individual ("Polk Jr." and, together with Polk Sr.,
the "Shareholders"), on the other hand.
W I T N E S S E T H:
WHEREAS, Parent, Merger Sub, TCD and the Shareholders desire that TCD merge
with and into Merger Sub (the "Merger"), upon the terms and conditions set forth
herein and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL") and the Florida Business Corporation Act ("FBCA"), with
the result that Merger Sub shall continue as the surviving corporation and the
separate existence of TCD shall cease;
WHEREAS, the Shareholders own of record and beneficially all of the one
hundred (100) issued and outstanding shares of common stock, $0.01 par value per
share, of TCD ("TCD Shares");
WHEREAS, Envirokare, on even date herewith has entered into a joint venture
with NOVA Chemicals Inc. ("NOVA") to be operated as LRM Industries, LLC, a
Delaware limited liability company ("LRM"), for the exclusive marketing,
development, production and distribution of products utilizing TCD's
Thermoplastic Flowforming (TPF) Technology.
WHEREAS, the parties previously entered into a Merger Agreement dated March
30, 2001 as amended on September 21, 2003 (the "Existing Merger Agreement"),
which Existing Merger Agreement as amended has not yet closed; and
WHEREAS, the parties wish to terminate such Existing Merger Agreement and
supersede any of its terms and conditions with those contained herein, including
those which were to survive the termination of such Existing Merger Agreement.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions set forth
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
Article I.
PLAN OF MERGER
Section 1.01 The Merger.
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The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.03), in accordance
with this Agreement, the DGCL and the FBCA, Parent shall contribute $2,500,000
to the capital of Merger Sub, TCD shall be merged with and into Merger Sub (the
"Merger"), the separate existence of TCD shall cease, and Merger Sub shall
continue as the surviving corporation (the "Surviving Corporation") and become a
wholly-owned subsidiary of Parent and the shareholders of TCD shall receive from
Merger Sub the consideration for their shares of TCD as set forth in Sections
2.01 and 2.02.
Section 1.02 Effect of the Merger.
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The Merger shall have the effects set forth in the DGCL and the FBCA and shall
be treated for federal and state income tax purposes by Parent, Merger Sub, TCD
and the Shareholders as a purchase by Merger Sub from TCD, for the consideration
set forth in Sections 2.01 and 2.02 (including the right to receive the deferred
payments set forth therein), of TCD's assets and a transfer by TCD to the
Shareholders of such consideration in complete liquidation. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of TCD and Merger Sub
(collectively, the "Constituent Corporations") shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Constituent
Corporations shall become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.03 Effective Time of the Merger.
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The Merger shall become effective at the date and time (the "Effective Time") as
set forth in the properly executed certificate of merger to be filed with the
Secretary of State of the State of Delaware (the "Delaware Certificate of
Merger") and a properly executed certificate of merger to be filed with the
Secretary of State of the State of Florida (the "Florida Certificate of
Merger").
Section 1.04 Charter; Bylaws; Directors and Officers.
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The Certificate of Incorporation of Merger Sub, as in effect immediately prior
to the Effective Time, shall, from and after the Effective Time, be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the provisions thereof and as provided by the DGCL.
The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall, from and after the Effective Time, be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with the provisions thereof
and as provided by the DGCL. The initial directors and officers of the Surviving
Corporation shall be each individual serving as a director or officer of Merger
Sub immediately prior to the Effective Time, each to hold their respective
positions in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation, in each case until their respective successors are duly
elected and qualified.
Section 1.05 The Closing.
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The consummation of the Merger and the other transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of TCD's counsel at on
March 3, 2004 at 9:00 a.m., local time (or at such other date, time or place as
may be mutually agreed) provided, that all of the Closing deliveries set forth
herein have been satisfied or waived (the "Closing Date").
Section 1.06 Further Assurances.
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On and after the Effective Time, the Shareholders will from time to time, at the
Surviving Corporation's request, promptly execute such instruments and take such
other actions as the Surviving Corporation may reasonably request to vest,
perform or confirm, of record or otherwise, in the Surviving Corporation, its
rights, title or interest in, to or under any of the rights, privileges, powers,
franchises, properties or assets of Merger Sub, or otherwise to evidence or
implement the transactions contemplated by this Agreement.
Section 1.07 Deliveries at Closing.
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The parties shall have delivered or caused to be delivered the following items
to each other as of the execution of this Agreement:
(a) Deliveries of TCD.
(i) Resolutions of the Board of Directors of TCD approving the Merger and the
transactions contemplated by this agreement.
(ii) Unanimous consents of the Shareholders approving the Plan and Agreement of
Merger.
(iii) Secretary's Certificate.
(iv) The Termination Agreement, terminating the Existing Merger Agreement, in
the form annexed hereto as Exhibit 1.07(iv) executed by TCD and the
Shareholders.
(v) The Delaware and Florida Certificates of Merger, duly executed and
delivered by TCD, in the form annexed hereto as Exhibit 1.07(vi).
(vi) The consulting services agreement, in the form attached hereto as Exhibit
5.05(c) (the "Consulting Services Agreement"), duly executed and delivered
by Dale Polk, Jr.
(vii)The employment agreements, duly executed and delivered by Donald Polk and
Les Polk, in the form attached as Exhibits 5.05(a) and (b) respectively
(the "Employment Agreements").
(viii) Original stock certificates representing the TCD Shares.
(b) Deliveries of Merger Sub or Parent.
(i) Payment of the amount set forth in Section 2.01(a) hereof, in cash or
immediately available funds.
(ii) Resolutions of the Board of Directors of Merger Sub, approving the Merger
and the transactions contemplated by this Agreement.
(iii)Resolutions of the Board of Directors of the Parent, approving the terms
of this Agreement (including voting the shares of Merger Sub owned by
Parent) and the Parent Guaranty.
(iv) The Parent Guaranty, duly executed and delivered by Parent.
(v) The Termination Agreement, executed by Parent and Merger Sub.
(vi) The Delaware and Florida Certificates of Merger, duly executed and
delivered by Merger Sub.
(vii)The agreements referred to in Section 1.07(a)(vi) and (vii), duly executed
by Merger Sub and LRM, as applicable.
(viii) The Promissory Note (as defined in Section 2.03 hereof).
(ix) Opinion letter to the Shareholders regarding the perfection of security
interests in collateral under Delaware law, substantially in the form
attached hereto as Exhibit 1.07(ix).
(x) The TCD Security Agreement (as defined in Section 2.03 hereto).
(xi) The LRM Guaranty (as defined in Section 2.03 hereto).
Article II.
CONVERSION AND EXCHANGE OF SHARES.
Section 2.01 Surrender and Exchange of Shares; Payment of Merger Consideration.
At the Effective Time, each outstanding share of common stock $5.00 par value of
TCD shall, without further action on the part of any Person, be canceled and be
converted into and become the right to receive from Merger Sub the "Merger
Consideration" as defined below. The issued and outstanding shares of Merger Sub
shall not be converted or exchanged in any manner, but each said share which is
issued and outstanding at the Effective Time shall continue to represent one
issued and outstanding share of Merger Sub. At the Closing, the Shareholders
shall surrender all outstanding certificates, which prior thereto represented
TCD Shares, to Merger Sub, and upon such surrender shall receive from Merger Sub
such Shareholder's pro rata share of the "Merger Consideration" payable as set
forth below. The words "pro rata" as used herein is the percentage of
outstanding TCD Shares immediately prior to the Effective Time owned by a
Shareholder. The "Merger Consideration" shall equal the sum of (i) fifteen
million dollars ($15,000,000) (the "Fixed Merger Consideration") and (ii) the
aggregate amounts payable in accordance with Section 2.02 (the "Contingent
Merger Consideration").
(a) At the Closing, Merger Sub shall pay the Shareholders $2,500,000.
(b) The balance of the Merger Consideration shall be paid to the Shareholders
in eight (8) annual installments following the Closing with the first such
payment due on or prior to January 31, 2006 and the last such payment due
on or prior to January 31, 2013 (and such payments shall be deemed to be
distributed to the Shareholders of TCD in complete liquidation), with each
annual payment to be equal to 2.5% of the "Consolidated EBIDTA" of LRM for
each calendar year, commencing with the calendar year ending December 31,
2005, up to a maximum aggregate of $12,500,000 for all payments under this
subsection (b).
(c) "Consolidated EBIDTA" for the purposes of this paragraph 2.01 means: with
respect to any fiscal period, LRM's and its subsidiaries' consolidated net
earnings, if any, as determined before deduction for interest expense,
taxes, depreciation and amortization for such period, as determined in
accordance with generally accepted accounting principles as in effect from
time to time in the United States, consistently applied ("GAAP") .
(d) In the event that 2.5% of the Consolidated EBIDTA of LRM during the first
four years after the Closing Date (ending on December 31, 2008) is less
than an aggregate of $2,000,000, Merger Sub shall pay to the Shareholders
any amount by which $2,000,000 exceeds 2.5% of the aggregate Consolidated
EBIDTA of LRM during this period within 30 days after the end of the fourth
year.
(e) In the event that 2.5% of the Consolidated EBIDTA of LRM during the years
five six and seven after the Closing Date (ending on December 31, 2011)
total less than an aggregate of $3,000,000, Merger Sub shall pay to the
Shareholders any amount by which $3,000,000 exceeds 2.5% of the aggregate
Consolidated EBIDTA of LRM during the period, within 30 days after the end
of the seventh year.
(f) At the end of the eighth year (ending December 31, 2012), in the event that
the Shareholders have not been paid $15,000,000 by virtue of the payments
set forth in Section 2.01 (a), (b), (d) and (e), Merger Sub shall pay on or
prior to January 31, 2013, any amount by which $15,000,000 exceeds all
monies paid to the Shareholders to date under Section 2.01(a), (b), (d) and
(e) so that the total payments made aggregate $15,000,000. In the event
that a cash payment is due the Shareholders pursuant to this paragraph, any
Shareholder may elect to receive this payment in four equal annual payments
beginning at the end of the eighth year set out above. Unpaid but due
balances will carry interest equal to LIBOR plus one percent but not to the
extent a Shareholder elects a deferral under the provisions of the prior
sentence.
(g) The assurance of any such payments to be made pursuant to this Section is
provided only by Merger Sub and guaranteed by LRM and Parent as set forth
below. The Parties acknowledge that no such assurance is being provided by
NOVA or any of NOVA's affiliates or subsidiaries other than Merger Sub, LRM
and Parent.
Section 2.02 Ongoing Payments.
As additional Merger Consideration (the "Contingent Merger Consideration"),
beginning January 1, 2013, the Shareholders shall be entitled to receive from
Merger Sub payments annually equal to their pro rata share of 1% of the Net
Income of LRM payable to the extent of and at the time of distribution of such
Net Income to Merger Sub or 90 days after the end of each year, whichever is
sooner; provided, however, that such obligation will cease if a majority of the
equity in, or assets of, LRM are sold to an unaffiliated third-party of LRM,
whether by merger, consolidation, exchange of interest or otherwise, excluding,
however, any disposition by lease, license or any other similar transaction;
further provided, that in connection with any such transaction, if such
transaction is a sale of assets or equity by LRM, Merger Sub will make a payment
to the Shareholders equal to 1% of the net proceeds of such transaction, or if
such transaction takes the form of a sale by the Members of interests in LRM,
Merger Sub will make a payment to the Shareholders equal to 1% of the aggregate
net proceeds realized by all Members of LRM in such sale (including Merger Sub).
In addition, in the event the Merger Sub or any of its Affiliates (as defined
below) at any time sells any part of its interests in LRM in a transaction other
than those described above, then Merger Sub shall pay to the Shareholders an
amount equal to 1% of the gross proceeds of any such sale. "Net Income" means,
with respect to any fiscal period, the consolidated net income of LRM and its
subsidiaries for such period, as determined in accordance with GAAP.
Section 2.03 Evidence of Obligation to Pay Guaranty; Security.
(a) Merger Sub's obligation to pay the balance of the Fixed Merger
Consideration set forth in Section 2.01(b), shall be evidenced by a
promissory note in favor of the Shareholders (the "Promissory Note"), in
the form attached hereto as Exhibit 1.07(b)(viii).
(b) The obligations of Merger Sub to pay the Fixed Merger Consideration set
forth in Section 2.01(b) shall be secured by a lien and first interests in
and to all of the assets acquired by LRM from Merger Sub (the "TCD Assets")
pursuant to that certain asset purchase agreement dated as of the date
hereof, such security interest to be evidenced by a security agreement
executed and delivered by LRM in favor of the Shareholders (the "TCD
Security Agreement"), in the form attached hereto as Exhibit 1.07(b)(x).
(c) The obligations of Merger Sub to pay the Fixed Merger Consideration set
forth in Section 2.01(b) and the Contingent Merger Consideration set forth
in Section 2.02, shall be guaranteed by LRM and Parent, to be evidenced by
guaranties to be executed and delivered by Parent and LRM, respectively
(the "Parent Guaranty" and the "LRM Guaranty", respectively), each in the
form of Exhibits 1.07(b)(iv) and 1.07(b)(xi) hereto.
Section 2.04 Certain Successor Entities.
Notwithstanding anything to the contrary, in the event that either Parent or
Merger Sub or any of its Affiliates acquires any equity interest or interest in
revenue or profits in another entity (other than LRM) which is commercially
exploiting any of the TCD Assets, then any funds received by either Parent,
Merger Sub or any of their Affiliates as a result of such equity interests or
interest in revenue or profits shall be included for the purpose of calculating
Consolidated EBIDTA of LRM (to the extent not already included) for the purposes
of the calculation specified in Section 2.01(b). For the purposes hereof, the
term "Affiliate" shall mean any person, other than LRM, that directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with Parent or Merger Sub. For the sake of clarity, it
is agreed that in no event shall the payments attributable to this clause, when
aggregated with the payments specified in Section 2.01(a), (b), (d) and (e),
exceed the $15,000,000 specified in Section 2.01(f). In addition, if any such
payments are received by Parent or Merger Sub or any of its Affiliates after
January 1, 2013, the shareholders shall receive an aggregate of 1% of such
payments, to the extent such payments are not duplicative of payments set forth
in Section 2.02.
Section 2.05 Closing of Stock Transfer Books.
On and after the Effective Time there shall be no transfers on the stock
transfer books of TCD of shares of capital stock of TCD that were issued and
outstanding immediately prior to the Effective Time.
Section 2.06 Access to Information; Cost of Examination.
In order to establish the Shareholders' right to any payments pursuant to
Section 2.04 hereof, Parent and Merger Sub shall, and to the extent applicable,
shall cause their Affiliates, to provide to the Shareholders all information
reasonablly necessary, and reasonable access to any books or records of Parent,
Merger Sub or their Affiliates necessary, to assertain the amount payable to
Shareholders in accordance with Section 2.04 hereof. In furtherance of the
foregoing, Merger Sub shall reimburse the Shareholders for all costs incurred by
Shareholders in connection with any examination (or audit) (including third
party fees and costs required to be paid in connection therewith) if any such
audit or exam shall determine or uncover the fact that more than 5% of the
payments due in accordance with Section 2.04 hereof were not fully paid or paid
when otherwise due.
Article III.
REPRESENTATIONS AND WARRANTIES OF
TCD AND THE SHAREHOLDERS
Each of TCD and the Shareholders, jointly and severally, represents and warrants
to Parent and Merger Sub, as follows:
Section 3.01 Organization of TCD.
TCD is a corporation duly organized and validly existing under the laws of the
State of Florida and has all requisite power and authority to own, lease and
operate its properties and assets and to conduct its business as now conducted
and as proposed to be conducted. TCD is duly qualified or licensed to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary. TCD has no direct or indirect subsidiaries and does not have (or
possess any options or other rights to acquire) any direct or indirect ownership
interests in any business, corporation, partnership, limited liability company,
association joint venture, trust or other entity. A true, complete and correct
copy of each of the Articles of Incorporation and the Bylaws of TCD as in effect
on the date of this Agreement, including all amendments thereto, are attached as
Schedule 3.01(a) and (b) hereto.
Section 3.02 Authorization.
The execution and delivery by TCD and the Shareholders of this Agreement and
each of the agreements, documents and instruments to be executed and delivered
by them pursuant hereto (collectively, the "TCD Documents"), the performance by
TCD and the Shareholders of their respective obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary action on the
part of TCD (including, but not limited to, the consent of TCD's shareholders
and directors) and TCD and the Shareholders have all necessary power, authority
and capacity, as the case may be, with respect thereto. This Agreement is, and
when executed and delivered, each of the TCD Documents will be, valid and
binding obligations of TCD and the Shareholders, as the case may be, enforceable
against TCD and the Shareholders, as applicable, in accordance with their
respective terms.
Section 3.03 Capitalization; Shares; Title.
(a) The TCD Shares constitute all of the issued and outstanding capital stock
in TCD, all of which are owned by the Shareholders. Each of the TCD Shares
has been duly authorized, validly issued and is fully paid and
non-assessable. Except for the transactions contemplated by this Agreement,
there are no outstanding rights, commitments or agreements of any kind to
which TCD or any Shareholder is a party or by which TCD or any Shareholder
is bound relating to any (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or
commitments of any character obligating TCD or any Shareholder to issue,
transfer or sell any shares of capital stock, options, warrants, calls or
other equity interest of any kind whatsoever in TCD or securities
convertible into or exchangeable for such shares or equity interests, (ii)
contractual obligations of TCD to repurchase, redeem or otherwise acquire
any capital stock or equity interest of TCD or (iii) voting trusts, proxies
or similar agreements to which TCD or any Shareholder is a party with
respect to the voting of the capital stock of TCD.
(b) Immediately prior to the Closing Date, each of the Shareholders shall have
good and marketable title to the TCD Shares, free and clear of any
mortgage, pledge, lien, charge, security interest, adverse claim within the
meaning of Section 8-102(a)(1) of the Uniform Commercial Code, restriction
of any kind affecting title or encumbering property, real or personal,
tangible or intangible, or encumbrances of any nature whatsoever
(collectively, "Liens").
Section 3.04 No Violations.
Neither the execution and delivery of this Agreement by TCD or the Shareholders,
nor the consummation by TCD or the Shareholders of the transactions contemplated
hereby and thereby, as applicable, will: (a) violate, conflict with or result in
any breach of any the provision of the Articles of Incorporation or the Bylaws
of TCD; (b) subject any Permit (as defined in Section 3.07) to suspension,
modification or revocation; (c) violate or conflict with any Laws (as defined in
Section 3.07); or (d) result in a violation or breach of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) or result in the termination of, or accelerate the
performance required by, or give rise to any right of termination, modification,
cancellation or acceleration or result in the imposition of any Lien upon any of
the assets of TCD under any agreement, contract, note, bond, mortgage,
franchise, permit, loan, lease, license, guarantee, understanding, commitment,
obligation or other arrangement (written or oral) of any kind to which TCD is a
party or by which TCD or any of its properties or assets may be bound.
Section 3.05 Consents.
No consent, permit, license, order, appointment, franchise, certificate,
approval or authorization of, or registration, declaration or filing with (i)
any foreign, federal, state or local court, administrative agency or commission
or other governmental authority or instrumentality (a "Governmental Entity"), or
(ii) any other Person, is required by the Shareholders or TCD in connection with
the execution, delivery and performance of this Agreement and the TCD Documents,
including, without limitation, the Merger.
Section 3.06 Litigation.
There are no claims, suits, actions or proceedings pending or, to the knowledge
of TCD and the Shareholders, threatened, nor are there any inquiries,
investigations or reviews pending or, to the knowledge of TCD or the
Shareholders, threatened, against, relating to or affecting TCD and the
Shareholders, which, if adversely determined, would individually or in the
aggregate have a Material Adverse Effect (as defined in this Section 3.06), nor
is TCD or the Shareholders subject to any order, rule, writ, judgment, award,
injunction or decree of any Governmental Entity or arbitral tribunal having such
Material Adverse Effect. There are no, and to the knowledge of TCD and the
Shareholders, there are no grounds for any, complaints or sanctions against TCD
or its management by any clients or customers of TCD. For purposes of this
Agreement, "Material Adverse Effect" shall mean, with respect to any person,
business, corporation, partnership, limited liability company, association joint
venture, trust or other entity (each, a "Person"), a material adverse effect on
(i) the validity or enforceability of this Agreement (ii) the ability of such
Person to perform its obligations under this Agreement or (iii) the business,
properties, assets or liabilities, prospects, financial condition or results of
operation of such Person, taken as a whole.
Section 3.07 Compliance with Law; Permits.
TCD (i) has complied in all respects with all laws, common laws, rules,
regulations, ordinances, codes, statutes, judgments, injunctions, orders,
decrees, permits, policies and other requirements of any Governmental Entity
applicable to TCD or its business, or by which any of TCD's properties or assets
may be bound ("Laws"); (ii) has all consents, permits, licenses, orders,
appointments, franchises, certificates, approvals, authorizations and
registrations issued by any Governmental Entity which are necessary for the
conduct of the Business ("Permits"), all of which are specified on Schedule
3.07; and (iii) is not in default with respect to any order, rule, writ,
judgment, award, injunction or decree of any Governmental Entity or arbitral
tribunal, applicable to TCD, its business or any of its assets, properties or
operations, except to the extent any such noncompliance, failure to have or
default shall not, individually or in the aggregate, have a Material Adverse
Effect.
Section 3.08 Financial Statements.
(a) Attached hereto as Schedule 3.08 is a true, complete and correct copy of
the following financial statements of TCD (collectively, the "Financial
Statements"):
(i) the balance sheet of TCD as at December 31 for each of the years 2003 and
2004, as set forth in Schedule L of TCD's federal income tax returns (Forms
1120s) filed by TCD for its 2003 and 2004 tax years;
(b) The Financial Statements have been prepared by TCD's management in
accordance with the accrual method of accounting, as utilized for income
tax purposes, and in accordance with the instructions for completing TCD's
Federal income Tax Returns, Form 1120s and Schedule L thereto, filed for
its 2003 and 2004 tax years (and, as such, have not been prepared in
accordance with GAAP). The Financial Statements have not been compiled,
reviewed or audited by any outside accountant. The Financial Statements are
true and correct in all material respects and fairly present the assets and
liabilities of TCD as of the respective dates thereof, based on the accrual
method of accounting, as adopted for Federal income Tax purposes,
consistently applied, and the instructions to Schedule L of Form 1120s.
(c) Undisclosed Liabilities.
There is no liability or obligation of TCD except (i) those that are disclosed,
reflected or reserved against the Financial Statements and (ii) such liabilities
or obligations incurred since December 31, 2004, in the ordinary course of
business, consistent with past practice, and which, individually and in the
aggregate, do not have a Material Adverse Effect.
Section 3.09 Receivables.
All accounts receivable of TCD have arisen, and as of the Effective Time will
have arisen, from bona fide transactions in the ordinary course of the TCD's
business consistent with past practice, net of reserves established in the
ordinary course of the TCD's business consistent with past practice.
Section 3.10 Inventory.
The inventories of TCD reflected on the Financial Statements have been valued
based on the accrual method of accounting, as applied for federal income tax
purposes, consistently applied, and the value of obsolete materials and
materials of below standard quality has been written down in accordance with
GAAP, consistently applied. The inventories of TCD contain no material amount of
items not saleable or usable within twelve (12) months from the date thereof at
normal profit margins consistent with historical sales practices. TCD is not
under any liability or obligation with respect to the return of inventory or
merchandise in the possession of wholesalers, distributors, retailers or other
customers.
Section 3.11 Taxes.
For purposes hereof, "Tax" means any tax, charge, fee, levy, deficiency or other
assessment of whatever kind or nature including, without limitation, any net
income, gross income, profits, gross receipts, excise, real or personal
property, sales, ad valorem, withholding, social security, retirement, excise,
employment, unemployment, minimum, estimated, severance, stamp, property,
occupation, environmental, windfall profits, use, service, net worth, payroll,
franchise, license, gains, customs, transfer, recording and other tax, duty,
fee, assessment or charge of any kind whatsoever, imposed by any Tax Authority,
including any liability therefor as a transferee (including without limitation
under Code Section 6901 or any similar provision of applicable law), as a result
of Treas. Reg. 1.1502-6 or any similar provision of applicable law, or as a
result of any tax sharing or similar agreement, together with any interest,
penalties or additions to tax relating thereto, (ii) "Tax Authority" means any
branch, office, department, agency, instrumentality, court, tribunal, officer,
employee, designee, representative, or other Person that is acting for, on
behalf or as a part of any foreign or domestic government (or any political
subdivision thereof) that is engaged in or has any power, duty, responsibility
or obligation relating to the legislation, promulgation, interpretation,
enforcement, regulation, monitoring, supervision or collection of or any other
activity relating to any Tax or Tax Return, (iii)"Tax Proceeding" means any
audit, examination, review, assessment or reassessment, refund claim, litigation
or other administrative judicial proceeding or other similar action by a Tax
Authority relating to any Tax for which TCD is (or is asserted to be) or may be
liable, the collection, payment, or withholding of any Tax, or any Tax Return
filed by or on behalf of TCD, and (iv)"Tax Return" means any return, election,
declaration, report, schedule, information return, document, information,
opinion, statement, or any amendment to any of the foregoing (including without
limitation any consolidated, combined or unitary return) submitted or required
to be submitted to any Tax Authority:
(a) TCD has elected to be taxed as an "S" corporation under the Code for all
taxable periods of TCD. TCD has timely filed its election to be an "S"
corporation and at all times has satisfied all the requirements necessary
to qualify as an "S" corporation
(b) TCD has (i) duly and timely filed or caused to be filed with each relevant
Tax Authority each Tax Return that is required to be filed by or on behalf
of TCD on or prior to the Closing, including Tax Returns relating to its
income, sales, assets or business, which Tax Returns are true, correct and
complete, (ii) duly and timely paid in full, caused to be paid in full, all
Taxes due and payable on or prior to the Closing, or (iii) has properly
accrued on the books and records of TCD in accordance with the accrual
method of accounting (as adopted for federal income tax purposes), a
provision for the payment of all Taxes due or claimed to be due or for
which TCD otherwise is or may be liable;
(c) TCD has not requested an extension of time within which to file any Tax
Return in respect of any Tax period which has not since been filed;
(d) TCD has complied in all respects with all applicable laws relating to the
payment, collection or withholding of any Tax, and the remittance thereof
to any and all Tax Authorities, including, but not limited to, Code
Sections 1441, 1442, 1445 and 3402;
(e) there is no lien for Taxes upon any asset or property of TCD (except for
any statutory lien for any Tax not yet due);
(f) TCD does not have, and is not expected to have, any liability in respect of
any Tax as a transferee or successor of any Person (including, but not
limited to, any liability arising under Treas. Reg. 1.1502-6), and TCD is
not, and never has been, a party to any Tax allocation, Tax indemnification
or Tax sharing contract or agreement;
(g) all Taxes assessed or proposed to be assessed with respect to TCD's income,
sales, assets or business, or for which TCD is or may be liable and which
are required to be paid on or before the Closing have been paid;
(h) no Tax Proceeding has ever occurred or is pending, or to TCD's or the
Shareholders' knowledge, proposed, or threatened with respect to any Tax,
the payment, collection or withholding of any Tax or any Tax Return filed
by or on behalf of TCD;
(i) the statute of limitations for any Tax Proceeding or the assessment or
collection of any Tax for which TCD is or may be liable or with respect to
TCD's income, sales, assets or business has never been extended or waived;
(j) TCD has never entered into any agreement with any Tax Authority (including,
but not limited to, any Closing agreement within the meaning of Code
Section 7121 or any analogous provision of applicable law relating to any
Tax for which TCD is or may be liable or with respect to TCD's income,
sales, assets or business;
(k) TCD is not a party to any contract, agreement or other arrangement that
could result, alone or in conjunction with any other contract, agreement or
other arrangement, in the payment of any amount that would not be
deductible by reason of Code Sections 162, 280G or 404 or any similar
provision of applicable law;
(l) TCD is not, nor has it been, a "United States real property holding
corporation" within the meaning of Code Section 897(c)(2) at any time
during the applicable period referred to in Code Section 897(c)(1)(A)(ii);
(m) TCD (i) has not adjusted or changed or received any request, demand, or
proposal from a Tax Authority to adjust or change any accounting method,
(ii) is not required to include in income any adjustment pursuant to Code
Section 481(a) (or any similar provision of applicable law) by reason of a
change in accounting method, and (iii) has neither deferred any income to a
period after the Closing that has economically accrued or is otherwise
attributable to a period prior to the Closing nor accelerated any
deductions into a period ending on or before the Closing that will or may
economically accrue after the Closing;
(n) there is no power of attorney in effect relating to any Tax for which TCD
is or may be liable or with respect to TCD's income, sales, assets or
business; and
(o) no jurisdiction where TCD does not file a Tax Return has asserted, or to
TCD's or the Shareholders' knowledge, threatened to assert any claim that
TCD is required to file a Tax Return for such jurisdiction.
Section 3.12 Contracts.
Schedule 3.12 sets forth a complete and accurate list of the following contracts
and commitments to which TCD is a party or by which any of its properties are
bound, all of which have been provided to Merger Sub: (a) collective bargaining
agreements and contracts with any labor union; (b) employment or consulting
agreements or any agreements providing for severance, termination or similar
payments; (c) leases, whether as lessor or lessee, involving real or personal
property with annual rental payments in excess of $10,000; (d) loan agreements,
mortgages, indentures, instruments or other evidence of indebtedness or
commitments in each case involving indebtedness (or available credit) for
borrowed money or money lent to others; (e) guaranty or suretyship, performance
bond, indemnification or contribution agreements; (f) written contracts with
customers or suppliers that require aggregate payments to or from TCD of more
than $10,000 in any one-year period, other than contracts issued in the ordinary
and usual course of business or terminable with thirty (30) days or less notice
without premium or penalty; (g) joint venture, partnership, or other agreements
evidencing an ownership interest or a participation in or sharing of profits;
(h) agreements, contracts or commitments limiting the freedom of TCD to engage
in any line of business or compete with any other corporation, partnership,
joint venture, company or individual; and (i) contracts that are terminable, or
under which payments by TCD may be accelerated, upon a change in control of TCD.
TCD has furnished or made available accurate and complete copies of the
foregoing contracts and agreements to Parent. As to each contract and commitment
referred to above (i) there exists no breach or default, and no event has
occurred which with the giving of notice or the passage of time or both would
constitute such a breach, default or permit termination, notification or
acceleration, on the part of TCD or, to the knowledge of TCD, on the part of any
third party which, with or without the giving of notice, lapse of time or the
happening of any other event or condition, would have a Material Adverse Effect
and (ii) as of the Effective Time, no third party consent, approval or
authorization shall be required for the consummation of the transactions
contemplated by this Agreement.
Section 3.13 Insurance.
Schedule 3.13 contains a true, complete and correct list of all policies of
fire, liability, production, completion bond, errors and omissions, fidelity
bonds, workmen's compensation and other forms of insurance owned or held by TCD
and true, complete and correct copies of all such policies have previously been
delivered to Merger Sub. All such policies are in full force and effect, all
premiums with respect thereto covering all periods up to and including the
Closing Date have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. To the knowledge of TCD and the
Shareholders, such policies (i) are sufficient for compliance with all material
requirements of Law and of all agreements to which TCD is a party, (ii) are
valid, outstanding and enforceable policies, (iii) provide insurance coverage
for the assets and operations of TCD consistent with the coverage customarily
maintained by similarly situated companies, (iv) will remain in full force and
effect through the dates set forth in Schedule 3.13 without the payment of
additional premiums and (v) will not in any way be affected by, or terminate or
lapse by reason of, the transactions contemplated by this Agreement. During the
last three years TCD has not been refused any insurance with respect to its
assets or operations, nor has its coverage been limited, by any insurance
carrier to which it has applied for any such insurance or with which it has
carried insurance.
Section 3.14 Intellectual Property.
Schedule 3.14 contains a complete and accurate list of all patents, invention
disclosures, trademarks, trade dress, trade names and corporate names, domain
names, trade secrets, uniform resource locators (URLs), keywords, logos, assumed
names, copyrights, mask works, know-how; all registrations, applications and
renewals for any of the foregoing; and other material intellectual property
rights (together with the goodwill associated therewith, collectively the
"Intellectual Property"), including, without limitation, all contracts,
agreements and licenses relating to any of the foregoing, owned by TCD or in
which TCD has any rights. TCD is not obligated to pay any royalty or similar fee
to any other party in connection with the TCD's use or license of any of the
Intellectual Property. The transactions contemplated by this Agreement will not
have a Material Adverse Effect on the right, title and interest of TCD as of the
Effective Time in and to the Intellectual Property. TCD has not interfered with,
infringed or is infringing on or otherwise come into conflict with any
proprietary property belonging to any other person, firm or corporation. Except
as set forth on Schedule 3.14, to the knowledge of TCD, no third party is
interfering with, infringing on or otherwise coming into conflict with the
Intellectual Property. Except as set forth on Schedule 3.14, TCD has not
received any written notice of material invalidity, interference, infringement
or misappropriation from any third party with respect to any of the Intellectual
Property. TCD has good title to the Intellectual Property owned by TCD, free and
clear of all Liens.
Section 3.15 Personal Property.
TCD has good title to all personal property material to the operation of its
business as now being conducted, free and clear of all Liens, except for
statutory Liens arising in the usual and ordinary course of business by
operation of law with respect to a liability that is not yet due or delinquent,
and all landlord's interests in all leased property, including but not limited
to those items contained in Schedule 3.15.
Section 3.16 Real Property.
(a) Schedule 3.16 sets forth a description of all interests TCD has in Real
Property. "Real Property" means all interests in real property, including,
without limitation, improvements, and fixtures located on such real
property, leasehold interests therein and any other interests in real
property.
(b) All oral or written deeds, leases, subleases, licenses, concession
agreements or other use or occupancy agreements pursuant to which TCD owns
or leases to or from any other party any real property, including all
renewals, extensions, modifications or supplements to any of the foregoing
or substitutions for any of the foregoing (collectively, the "Leases"), are
legal, valid, binding and in full force and effect, and have not been
assigned, modified, supplemented or amended. TCD owns the Real Property
necessary to conduct its business as presently conducted. TCD has made
available to Parent true and complete copies of the deed, and all material
correspondence related to the Real Property owned by TCD. To the knowledge
of TCD, it owns the Real Property and has good title to the Real Property,
free and clear of all Liens, except for those restrictions which do not
impair the current use, occupancy, value or title, of the Real Property
subject thereto, and Liens for current taxes not yet due and payable.
Section 3.17 Environmental Matters.
(a) TCD is in compliance in all material respects with all applicable
Environmental Laws and has been issued and currently maintains all required
federal, state and local permits, licenses, certificates and approvals
except to the extent such non-compliance or the absence of any such permit,
license, certificate or approval would not be, singly or in the aggregate,
reasonably expected to have a Material Adverse Effect. TCD has not been
notified of any pending or threatened action, suit, proceeding or
investigation and TCD is not aware of any facts, which (i) call into
question, or would reasonably be expected to call into question, compliance
by TCD with any Environmental Laws, (ii) seeks, or would reasonably be
expected to form the basis of a meritorious proceeding to seek, to suspend,
revoke or terminate any license, permit or approval necessary for the
operation of TCD's business or facilities or for the generation, handling,
storage, treatment or disposal of any Hazardous Substances, or (iii) seeks
to cause, or would reasonably be expected to form the basis of a
meritorious proceeding to cause, any property of TCD to be subject to any
restrictions on ownership, use, occupancy or transferability under any
Environmental Law, any of which would reasonably be expected to have a
Material Adverse Effect. TCD has not caused or permitted its business or
property (whether real or personal, owned or leased and whether or not
currently owned or occupied by any such entity) to be used to generate,
manufacture, refine, transport, treat, store, handle, dispose, transfer,
produce, or process Hazardous Substances, except in material compliance
with all applicable Environmental Laws.
(b) TCD has not received notice of any violation or notice of regulatory
requirements or has been notified of any threatened or pending action,
suit, proceeding or investigation which suggests that TCD is a potentially
responsible party with regard to any release or threatened release of
Hazardous Substances.
(c) TCD has no liability of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, arising under or relating
to any Environmental Law, which liability would have a Material Adverse
Effect.
(d) For purposes of this Agreement, the term "Environmental Laws" means any
federal, state or local statute, common law, ordinance, code, rule,
regulation, order, decree, injunction, agreement or permit regulating,
relating to, or imposing liability or standards of conduct concerning,
human health or the environment, including the emission, discharge or
release of pollutants, contaminants, Hazardous Substances or wastes into
the environment (which includes, without limitation, ambient air, surface
water, ground water, or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") 42 U.S.C. Section 9601 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; the Clean Air Act, 42
U.S.C. Section 7401 et seq.; the Water Pollution Control Act, 33 U.S.C.
Section 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. Section
2610 et seq.; and the Federal Technical Standards and Corrective Action
Requirements for Owners and Operators of Underground Storage Tanks, the
Virginia Waste Management Act, Va.Code Sec.10.1-1400 through 10.1-1457
and the Virginia State Water Control Law, Va.Code Sec.62.1-44.2 through
62.1-44.34:28.
(e) For purposes of this Agreement, the term "Hazardous Substances " means any
and all dangerous, toxic, radioactive, caustic or otherwise hazardous
material, pollutant, contaminant, chemical, waste or substance defined,
listed or described as any of such in or governed by any Environmental Law,
including but not limited to urea-formaldehyde, polychlorinated biphenyls,
asbestos or asbestos-containing materials, radon, explosives, known
carcinogens, petroleum and its derivatives, petroleum products, or any
substance which might cause any injury to human health or safety or to the
environment or might subject the owner or operator of real property to any
regulatory actions or claims. "Hazardous Substances" shall include, without
limitation, asbestos, airborne asbestos, polychlorinated biphenyls (PCBs),
petroleum products, lead-based paint and urea-formaldehyde.
Section 3.18 Employee Benefits Matters.
Neither TCD, the Shareholders, nor any other company or entity which together
with TCD constitute a member of a "controlled group" (within the meaning of
Sections 4001(a)(14) and/or (b) of ERISA, and/or Sections 414(b), (c), (m) or
(o) of the Code (hereinafter referred to collectively as the "Group")), has at
any time adopted, maintained, or has any present or future obligation to
contribute to or make payment under, any employee pension benefit, employee
welfare benefit, pension, profit sharing, retirement, deferred compensation,
stock purchase, stock option, incentive, bonus, sabbatical leave, vacation,
severance (including, without limitation, arrangements providing for benefits in
the event of a change of ownership in whole or in part of TCD), disability,
hospitalization, medical insurance, relocation, child care, educational
assistance or other employee benefit plan as defined in Section 3(3) of ERISA or
any program or other fringe benefit, or any employment, consulting, service or
other contract of any kind whatsoever. No member of the Group is or has been
within the last five (5) years obligated to contribute to any employee pension
benefit plan subject to Title IV of ERISA (other than a multi-employer plan). No
member of the Group currently has or has had, within the immediately preceding
six (6) years, any obligation to contribute to any multiemployer plan as defined
in Section 4001(a)(3) of ERISA or any employee benefit plan subject to
Sections 4063 or 4064 of ERISA. No member of the Group has completely or
partially withdrawn from any multiemployer plan. TCD has no obligation to or on
behalf of any retired or former employee with regard to any disability (long or
short term), hospitalization, medical, dental or life insurance plans (whether
insured or self-insured) or other employee welfare plan as defined in
Section 3(1) of ERISA maintained by TCD, other than as may be required by the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
Section 4980B of the Code, Part 6 of Subtitle B of Title I of ERISA and the
regulations thereunder.
Section 3.19 Employment Matters.
Schedule 3.19 sets forth a true and correct list of the name and total annual
compensation of each current director, officer, employee, sales representative,
consultant and agent of TCD, along with the date such current officer, employee,
consultant, or sales representative and agent was hired or retained by TCD, (b)
a description of the terms of services and benefits applicable to such person,
and (c) any payments or commitments (whether formal or informal) to pay any
severance or termination pay to any such persons or to any other person. Except
as set forth on Schedule 3.19, TCD is not a party to any agreement, contract or
other understanding, whether oral or written, with any union or other labor
organization or other representative of its employees. Except as set forth on
Schedule 3.19, there is no pending, threatened or noticed litigation,
administrative action or complaint (whether from state, federal or local
government or from any other person, group, or entity) relating to compliance
with Title III of the Americans with Disabilities Act. Except as set forth on
Schedule 3.19, TCD is in compliance in all respects with all applicable laws,
policies, procedures and agreements, whether oral or written, relating to (i)
any employment, (ii) the terms and conditions of employment and (iii) the proper
withholding and remission to the proper Governmental Entity of all sums required
to be withheld from employees or persons deemed to be employees under applicable
Tax laws respecting such withholding. TCD has paid in full to all of its
employees all wages, salaries, commissions, bonuses, benefits and other
compensation due and payable to such employees on or prior to the date hereof.
Section 3.20 Customers and Suppliers.
Schedule 3.20 sets forth (i) a list of the sales of TCD for the fiscal year
ended December 31, 2003 and December 31, 2004, (ii) a list of the ten customers
with the highest dollar volume of purchases from TCD during each of those
periods indicating the approximate total sales to each of those customers, and
(iii) a list of the ten largest suppliers of TCD during each of those periods.
There has not been any adverse change in the business relationship of TCD with
any such customer or supplier, and no Shareholder is aware of any threatened
loss of any such customer or supplier.
Section 3.21 Product Claims.
No product liability claim is pending, or to the knowledge of the Shareholders
threatened, against TCD or against any other party with respect to the products
of TCD's business. There are no service and product liability claims seeking
damages in excess of $5,000 asserted against TCD (or in respect of which TCD
received notice) with respect to the products of TCD's business or TCD during
the last three (3) years.
Section 3.22 No Material Adverse Change.
Since December 31, 2004, there has not been, and no event has occurred or
circumstance has existed that may result in, a Material Adverse Effect.
Notwithstanding anything herein to the contrary, all cash on hand in TCD's bank
accounts immediately prior to the Effective Time, shall be distributed by TCD to
the Shareholders.
Section 3.23 Bank Accounts.
Set forth in Schedule 3.23 is the name of each bank, safe deposit company or
other financial institution in which TCD has an account, lock box or safe
deposit box and the names of all persons authorized to draw thereon or have
access thereto.
Section 3.24 Full Disclosure.
No representation or warranty of the Shareholders or TCD contained in this
Agreement, and no statement contained in any certificate or schedule furnished
or to be furnished by or on behalf of the Shareholders or TCD to Parent or any
of its representatives pursuant hereto (including the Schedules hereto),
contains or will contain any untrue statement of a material fact, or omits to
state any material fact necessary, in the light of the circumstances under which
it was or will be made, in order to make the statements herein or therein, taken
as a whole, not misleading.
Section 3.25 [Intentionally Omitted]
Section 3.26 Brokers and Finders.
TCD has not employed any broker, financial advisor or finder or incurred any
liability for any broker, financial advisory or finders' fees in connection with
this Agreement or the transactions contemplated hereby.
Section 3.27 Independent Tax Counsel.
TCD and the Shareholders have consulted with their own tax advisor regarding tax
consequences associated with entering into this Agreement.
Article IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally, represent and warrant to the TCD
and the Shareholders, as follows:
Section 4.01 Organization of Parent and Merger Sub.
Parent is a corporation duly organized and validly existing under the laws of
the State of Nevada and has all requisite power and authority to own, lease and
operate its properties and assets and to conduct its businesses as now
conducted. Merger Sub is a corporation duly organized and validly existing under
the laws of the State of Delaware and has all requisite power and authority to
own, lease and operate its properties and assets and to conduct its businesses
as now conducted. LRM is a limited liability company duly organized and validly
existing under the laws of the State of Delaware and has all requisite power and
authority to own, lease and operate its properties and assets and to conduct its
business as now conducted and the business to be conducted through its purchase
of the TCD Assets.
Section 4.02 Authorization of Parent.
The execution and delivery by Parent and Merger Sub as of this Agreement, and
the execution and delivery by LRM of the TCD Security Agreement and the TCD
Guaranty, and of each of the agreements, documents and instruments to be
executed and delivered by it pursuant hereto, the performance by Parent, Merger
Sub or LRM, as the case may be, of its obligations hereunder and thereunder, and
the consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary action on the part of Parent,
Merger Sub and LRM, as the case may be, and each of Parent, Merger Sub and LRM
have all necessary corporate (or limited liability company) power and authority
with respect thereto. This Agreement is, and when executed and delivered, each
of the other agreements, documents and instruments to be executed and delivered
by Parent and Merger Sub in connection with this Agreement will be, assuming the
due authorization, execution and delivery of each such agreement by all of the
other parties thereto, the valid and binding agreement of Parent and Merger Sub,
enforceable against Parent and Merger Sub in accordance with their respective
terms, and each of the TCD Security Agreement and the TCD Guaranty is, and when
executed and delivered, each of the other agreements, documents and instruments
to be executed and delivered by LRM in connection therewith will be, assuming
the due authorization, execution and delivery of each such agreement by all of
the other parties thereto, the valid and binding agreement of LRM, enforceable
against LRM in accordance with its and their respective terms, except that (a)
such enforcement may be subject to any bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other laws, now or hereafter in effect,
relating to or limiting creditors, rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
Section 4.03 No Violations.
Neither the execution and delivery of this Agreement and the agreements,
documents and instruments to be executed and delivered by Parent, Merger Sub and
LRM in connection herewith, nor the consummation by Parent, Merger Sub or LRM,
as the case may be, of the transactions contemplated hereby and thereby will:
(a) violate, conflict with or result in any breach of any provision of the
Certificate of Incorporation or Bylaws of Parent, Merger Sub or the Certificate
of Formation or Operating Agreement of LRM; (b) subject to compliance with the
statutes and regulations referred to in Section 4.04 hereof applicable to
Parent, Merger Sub or LRM, violate or conflict with any Laws applicable to
Parent, Merger Sub or LRM or by which any of their properties or assets may be
bound; or (c) result in a violation or breach of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
or result in the termination of, or accelerate the performance required by, or
give rise to any right of termination, modification, cancellation or
acceleration or, except as set forth in the TCD Security Agreement, the
Envirokare Security Agreement (as hereinafter defined), the TCD Guaranty and the
Parent Guaranty, result in the imposition of any Lien or the creation of any
security interest, charge or encumbrance upon any of the assets (including the
TCD Assets) of Parent, Merger Sub or LRM, as the case may be, under any note,
bond, mortgage, license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which Parent, Merger Sub or LRM is a
party or by which Parent or Merger Sub or any of its or their respective
properties or assets may be bound; excluding from the foregoing clauses (b) and
(c) such violations, conflicts, breaches and defaults which, in the aggregate,
would not have a Material Adverse Effect.
Section 4.04 Governmental Consents.
No consent, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by Parent, Merger Sub or LRM in
connection with the execution, delivery and performance of this Agreement and
the other agreements, documents and instruments to be executed and delivered by
Parent, Merger Sub or LRM in connection with this Agreement or the consummation
of the transactions contemplated hereby or thereby, except as may be required by
the Securities and Exchange Commission (the "SEC").
Section 4.05 Brokers and Finders.
Neither Parent nor Merger Sub has employed any broker, financial advisor or
finder or incurred any liability for any broker, financial advisory or finders'
fees in connection with this Agreement or the transactions contemplated hereby.
Section 4.06 SEC Reports and Financial Statements.
Each form, report, schedule, registration statement and definitive proxy
statement filed by Parent with the SEC since January 1, 2003 (as such documents
have been amended prior to the date hereof, the "Parent SEC Reports"), as of
their respective dates, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and the Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations thereunder. None of the Parent SEC Reports, as of the date on which
such SEC Report was declared effective pursuant to the Securities Act or the
date on which such SEC Report was filed pursuant to the Exchange Act, as
applicable, contained or contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except for such statements, if any, as have been modified
or superseded by subsequent filings prior to the date hereof. The consolidated
financial statements of Parent and its subsidiaries included in such reports
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP, consistently
applied (except, in the case of the unaudited interim financial statements, as
permitted by Form 10-Q of the SEC) and fairly present in all material respects
(subject, in the case of the unaudited interim financial statements, to normal,
year-end audit adjustments) the consolidated financial position of Parent and
its Subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 4.07 Approvals of Parent and Merger Sub.
The Boards of Directors of Merger Sub, as of the date of this Agreement, has
determined (i) that the Merger is fair to, and in the best interests of Merger
Sub and its sole stockholder, and (ii) Parent, as sole stockholder of Merger Sub
has approved and adopted this Agreement and approved the Merger.
Article V.
COVENANTS AND OTHER AGREEMENTS OF THE PARTIES
Section 5.01 Employment Agreements.
At the Closing, Polk Jr. shall enter into the Consulting Services Agreement with
LRM, and Donald Polk and Les Polk shall each enter into the Employment
Agreements with Merger Sub.
Section 5.02 Commercially Reasonable Efforts; Agreement to Cooperate;
Further Assurances.
Subject to the terms and conditions of this Agreement, each of the parties
hereto shall use its commercially reasonable efforts (except as otherwise
explicitly provided herein) to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and contracts to consummate and make effective the transactions
contemplated by this Agreement including, without limitation, providing
information in accordance with the terms of this Agreement and using its
commercially reasonable efforts to obtain all necessary or appropriate waivers,
consents and approvals, to effect all necessary registrations and filings and to
lift any injunction or other legal bar to the transactions contemplated hereby
(and, in such case, to proceed with the transaction as expeditiously as
possible). In case at any time after the Closing Date any further action is
reasonably necessary or desirable to carry out the purposes of this Agreement,
each of the parties to this Agreement shall take all such reasonably necessary
actions. Each of the parties hereto will furnish to the other party such
necessary information and reasonable assistance as such other parties may
reasonably request in connection with the foregoing and will provide the other
party with copies of all filings made by such party with any Governmental Entity
or any other information supplied by such party to a Governmental Entity in
connection with this Agreement and the transactions contemplated hereby.
Section 5.03 Expenses.
Each of the parties will bear his or its own costs and expenses (including legal
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby.
Section 5.04 Tax Matters.
(a) The Shareholders shall prepare final Federal and State income Tax Returns
for TCD as of and through the close of business on the date of the
Effective Time. Merger Sub will be permitted to review such return. TCD's
tax year as an "S" corporation will terminate as of the close of business
on the date of the Effective Time. The Shareholders shall reimburse Merger
Sub for Taxes of TCD with respect to such periods within fifteen (15) days
after payment by Merger Sub to the extent such Taxes are not reflected in
the reserve for Taxes shown on TCD's Financial Statements, and to the
extent Merger Sub is liable for such taxes.
(b) The Shareholders, Merger Sub and Parent shall reasonably cooperate, and
shall cause their respective representatives reasonably to cooperate, in
preparing and filing all Tax Returns, including maintaining and making
available to each other all records necessary in connection with the
preparation and filing of Tax Returns, the payment of Taxes and the
resolution of Tax audits and Tax deficiencies with respect to all taxable
periods. Merger Sub and the Shareholders each recognizes that the other
parties may need access, from time to time, after the Closing, to certain
accounting and Tax records and information held by either of them that
pertain to events occurring prior to the date of the Closing. Each of the
parties therefore agrees to allow the other parties and their
representatives, at times and dates reasonably acceptable to such party, to
inspect, review and make copies of such records as the parties may deem
necessary or appropriate, provided such activities are conducted during
normal business hours on reasonable advance notice.
(c) Parent, Merger Sub and the Shareholders further agree, upon reasonable
request, to provide the other party with all information that either party
may be required to report pursuant to Section 6043 of the Code and all
Treasury Regulations promulgated thereunder.
(d) The Parent, Merger Sub, TCD and the Shareholders agree to treat the
transaction for federal and state income tax purposes as a purchase by
Merger Sub from TCD of its assets in exchange for the consideration set
forth in Sections 2.01, 2.02 and 2.04 followed by a distribution in
complete liquidation by TCD of such consideration (including, but not
limited to, the right to the deferred payments set forth therein) to its
Shareholders, pro rata, in proportion to their relative ownership of TCD
Shares immediately before the Effective Time.
(e) Merger Sub agrees that it shall not amend any Federal or State income Tax
Returns of TCD for any Tax period ending on or before the date of the
Effective Time, without the prior written consent of the Shareholders. In
the event that Merger Sub shall receive any notice from any Tax Authority
of its intent to audit or examine any Federal or State income Tax Return of
TCD for any Tax period ending on or before the Effective Time, Merger Sub
shall promptly notify the Shareholders thereof and forward to the
Shareholders all notices, documents or other information which Merger Sub
shall receive with respect thereto. In the event of any examination or
audit of any Federal or State income Tax Return of TCD for any Tax period
ending on or before the Effective Time, the Shareholders shall have the
sole right and authority to represent TCD in connection therewith, and to
settle such audit or exam (including the right to enter into such
settlement agreements or closing agreements, with respect thereto, as the
Shareholders shall determine), on behalf of TCD, as its authorized
representative, on such terms and conditions as the Shareholders shall
determine in their sole discretion; provided, that Merger Sub will be
permitted to review the settlement terms; and, provided, further that, the
Shareholders shall pay any Taxes of TCD resulting from any such audit or
examination.
Section 5.05 Filings of Security Interests.
The parties agree to take all actions, and execute and deliver all such
documents, as may be necessary or appropriate to perfect the security interests
in and to the collateral described in the TCD Security Agreement, as promptly as
possible following the Closing. In furtherance thereof, the parties agree to
file or coordinate their filing of the applicable Financing Statements and
Security Agreements perfecting the respective liens and security interests in
and to the collateral described in the TCD Security Agreement which LRM is
granting both the Shareholders under the TCD Security Agreement and Merger Sub
under that certain Security Agreement (the "Envirokare Security Agreement"),
dated as of even date herewith (to secure the obligations of LRM to Merger Sub
arising from Merger Sub's sale to LRM of the TCD Assets), to ensure that the
lien and security interest in such collateral granted the Shareholders is
superior to and has preference over the security interest therein granted or to
be granted Merger Sub under the Envirokare Security Agreement, including
coordinating their filings with the United States Patent and Trade Office and
their filings of the applicable Financial Statements in the appropriate
jurisdiction (or jurisdictions) necessary or appropriate to perfect the parties'
respective security interests therein, to ensure that the Shareholders' security
interest in such collateral is superior to and has preference over the lien and
security interest therein granted Merger Sub.
Article VI.
CONDITIONS TO THE CLOSINGS
Section 6.01 Conditions to the Closing.
The sole condition to the Closing shall be the completion of the filing of the
Delaware and Florida Certificates of Merger as provided in Section 1.03. If the
Certificates of Merger are not accepted for filing, then the parties shall make
such non-substantive adjustments as may be required by the Secretary of State of
Delaware or Florida, as the case may be. If for any reason the Certificates of
Merger are not filed on or prior to 4:00 p.m. on March 4, 2005, this Agreement
shall terminate and the parties will be restored to their respective rights and
obligations prior to the execution of this Agreement. Notwithstanding the
foregoing, if any party breaches this Agreement, such party shall remain liable
for such breaches notwithstanding such termination.
Article VII.
INDEMNIFICATION
Section 7.01 Survival.
Notwithstanding any investigation made by each of the parties hereto: (i) all
representations and warranties contained in Sections 3.01, 3.02, 3.03, 3.11,
3.16, 3.17, 3.18, 3.19, 3.21, 4.01, 4.02, 4.03, 4.05 and 4.07 shall survive the
Closing and continue in full force and effect thereafter (subject to applicable
statutes of limitation) and (ii) all other representations and warranties of
each of the parties in this Agreement shall survive the Closing and continue in
full force and effect for a period of two (2) years thereafter.
Section 7.02 Indemnification by TCD and the Shareholders.
The Shareholders (and, if the transactions contemplated herein are not
consummated, TCD), jointly and severally, shall indemnify, defend and hold
harmless Parent and Merger Sub, each of their successive successors and assigns
and their directors, officers, agents, representatives and employees
(collectively, the "Purchaser Indemnified Parties") from and against any and all
liability, loss, damage, claim, charge, action, suit, proceeding, investigation,
deficiency, Tax, interest, penalty, reasonable cost and reasonable expense
(including, without limitation, reasonable attorney's fees) (a "Loss") imposed
on, incurred or suffered by or asserted against any Purchaser Indemnified Party,
to the extent such Loss results from or arises out of: (a) any breach of any
representation or warranty of TCD or the Shareholders contained in this
Agreement, except for representations and warranties contained in Sections 3.01,
3.02, 3.03, 3.11, 3.16, 3.17, 3.18, 3.19 and 3.21, (b) any breach of any
representation or warranty of TCD or the Shareholders contained in Sections
3.01, 3.02, 3.03, 3.11, 3.16, 3.17, 3.18, 3.19 and 3.21 (c) any breach of any
covenant of TCD or the Shareholders set forth in this Agreement including,
without limitation Articles V and VI and (d) the ownership or operation of TCD
or its business prior to the Closing Date; provided, however, that (i) neither
the Shareholders nor TCD shall have any liability for indemnification with
respect to the matters arising under clause (a) of this Section 7.02, until the
aggregate of all such Losses exceeds $50,000.
Section 7.03 Indemnification by Parent and Merger Sub.
Parent and Merger Sub shall jointly and severally indemnify, defend and hold
harmless the Shareholders (and, if the transaction contemplated herein is not
consummated, TCD and its directors, officers, agents, representatives and
employees) and their successive successors and assigns (collectively, the
"Seller Indemnified Parties" and, together with the Purchaser Indemnified
Parties, collectively referred to as the "Indemnified Parties") from and against
any and all Losses imposed on, incurred or suffered by or asserted against any
Seller Indemnified Party, directly or indirectly, to the extent resulting from,
arising out of, or incurred with respect to (a) any breach of any representation
or warranty of Parent and Merger Sub contained in this Agreement, except for
Sections 4.01, 4.02, 4.03, 4.05 and 4.07, (b) any breach of any representation
or warranty of Parent and Merger Sub contained in Sections 4.01, 4.02, 4.03,
4.05 and 4.07 and (c) any breach of any covenant of Parent or Merger Sub set
forth in this Agreement; provided, however, neither Parent nor Merger Sub shall
have any liability for indemnification with respect to the matters arising under
clause (a) of this Section 7.03, to the extent the aggregate of all such Losses
exceeds $200,000.
Section 7.04 Indemnification Procedures.
(a) In order for an Indemnified Party to be entitled to any indemnification
provided for under this Agreement, the Indemnified Party shall deliver to
the party against whom indemnification is sought in accordance with Section
7.02 or 7.03, as the case may be (an "Indemnifying Party"), notice of its
claim for indemnification with reasonable promptness after determining to
make such claim. The failure by any Indemnified Party to so notify the
Indemnifying Party, as the case may be, shall not relieve the Indemnifying
Party from any liability which it may have to such Indemnified Party under
this Agreement, except to the extent that the Indemnifying Party shall have
been materially and adversely prejudiced by such failure. If the
Indemnifying Party disputes its liability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction as provided in Section 8.04.
(b) If any claim for indemnification under Section 7.02 or 7.03 involves the
claim of any third party against an Indemnified Party (a "Third-Party
Claim"), the Indemnifying Party shall, upon notice as provided above,
assume control over the defense thereof, with counsel reasonably
satisfactory to the Indemnified Party, and, after notice from the
Indemnifying Party to the Indemnified Party of its assumption of the
defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof (but the
Indemnified Party shall have the right, but not the obligation, to
participate at its own cost and expense in such defense by counsel of its
own choice) or for any amounts paid or foregone by the Indemnified Party as
a result of any settlement or compromise thereof that is effected by the
Indemnified Party (without the written consent of the indemnifying party).
(c) Anything in Section 7.04 notwithstanding, if both the Indemnifying Party
and the Indemnified Party are named as parties or subject to such
Third-Party Claim and either such party determines with advice of counsel
that there may be one or more legal defenses available to it that are
different from or additional to those available to the other party or that
a conflict of interest between such parties may exist in respect of such
Third-Party Claim, then the Indemnifying Party may decline to assume the
defense on behalf of the Indemnified Party or the Indemnified Party may
retain the defense on its own behalf, and, in either such case, after
notice to such effect is duly given hereunder to the other party, the
Indemnifying Party shall be relieved of its obligation to assume the
defense on behalf of the Indemnified Party, but shall be required to pay
any legal or other expenses including, without limitation, reasonable
attorney's fees and disbursements, incurred by the Indemnified Party in
such defense.
(d) If the Indemnifying Party assumes the defense of any such Third-Party
Claim, the Indemnified Party shall cooperate fully with the Indemnifying
Party and shall appear and give testimony, produce documents and other
tangible evidence, allow the Indemnifying Party reasonable access to the
books and records of the Indemnified Party and otherwise provide reasonable
assistance to the Indemnifying Party in conducting such defense. No
Indemnifying Party shall, without the consent of the Indemnified Party,
consent to entry of any judgment or enter into any settlement or compromise
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such Third-Party Claim. Provided that proper notice
is duly given, if the Indemnifying Party shall fail promptly and diligently
to assume the defense thereof, then the Indemnified Party may respond to,
contest and defend against such Third-Party Claim (but the Indemnifying
Party shall have the right to participate at its own cost and expense in
such defense by counsel of its own choice) and may make in good faith any
compromise or settlement with respect thereto, and recover from the
Indemnifying Party the entire cost and expense thereof including, without
limitation, reasonable attorney's fees and disbursements and all amounts
paid or foregone as a result of such Third-Party Claim, or the settlement
or compromise thereof. The indemnification required hereunder shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills or invoices are received or
loss, liability, obligation, damage or expense is actually suffered or
incurred.
(e) Notwithstanding the foregoing provisions of this Section 7.04, in
circumstances where Section 7.04(c) does not apply and the Indemnifying
Party has diligently assumed the defense of the Third-Party Claim, the
Indemnified Party shall nonetheless have the right at its own cost and
expense to take over and assume the control (as to itself) of the defense
or settlement of the Third-Party Claim. The Indemnifying Party shall not be
liable under this Article IX for any settlement or compromise effected
without its consent.
(f) The amount of any Loss for which indemnification is provided hereunder
shall be reduced pro tanto by any amount recovered by an Indemnified Party
(whether by payment, discount or otherwise) from any third party, including
without limitation under any insurance policy. If such recovery occurs
subsequent to any payment by the Indemnifying Party pursuant to this
Section, the Indemnified Party shall promptly pay to the Indemnifying Party
the amount of such recovery up to the amount paid by the Indemnifying Party
with respect to such claim.
Section 7.05 Exclusive Remedy.
Each of the parties hereto acknowledges that indemnification pursuant to this
Article VII shall be the exclusive remedy of any Indemnified Party with respect
to a Third-Party Claim relating to any breach of a representation or warranty
under this Agreement, provided that (a) nothing herein shall be deemed to limit
or restrict any party's rights or remedies based upon, or arising out of or
otherwise in respect of, fraud and (b) nothing herein shall be deemed to limit
or restrict any party's rights or remedies prior to the Closing Date, including
rights or remedies based upon equitable principles (including specific
performance and injunctive relief) and, in that connection, each party against
whom such equitable remedies are being sought agrees that money damages would
not be a sufficient remedy in any such instance and that the party seeking such
relief shall be entitled, without the necessity of actual monetary loss being
proved or the posting of a bond, to such equitable relief.
Article VIII.
MISCELLANEOUS
Section 8.01 Amendment, Modification and Waiver.
This Agreement may not be amended, modified or waived except by an instrument or
instruments in writing signed and delivered on behalf of each of the parties
hereto.
Section 8.02 Entire Agreement.
This Agreement (together with the schedules, exhibits and other agreements,
documents and instruments delivered pursuant hereto) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings both written and oral,
among the parties or any of them with respect to the subject matter hereof.
Section 8.03 Notices.
All notices, requests, claims, demands and other communications hereunder shall
be in writing and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by telecopy (which is confirmed), or by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at their respective addresses set forth herein or to such other address
as the person to whom notice is given may have previously furnished to the
others in writing in the manner set forth above.
Governing Law; Jurisdiction. This Agreement shall be governed by, and
interpreted and enforced in accordance with, the laws of the State of Delaware
without regard to choice or conflict of laws principles. Each party to this
Agreement hereby expressly agrees that in the event of any legal or equitable
action arising under this Agreement, the venue of such action shall lie
exclusively within the state courts of Florida located in Brevard County,
Florida or in the United States District Court for the Middle District of
Florida, Orlando Division, Orange County, Florida and the parties hereto do
hereby specifically waive any other jurisdiction and venue. In furtherance
thereof, each party agrees that it shall not attempt to deny or defeat personal
jurisdiction of any such court by motion or other request for leave from such
court and agrees not to bring any action relating to this Agreement or any of
the transactions contemplated hereby in any other court. It is further agreed
that any breaching or defaulting party hereunder shall pay to the other parties
hereto such out of pocket costs and expenses, including legal and accounting
fees, as are reasonably incurred in pursuit of such parties' remedies hereunder.
Section 8.04 Headings.
The descriptive headings herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning or interpretation of
this Agreement.
Section 8.05 Assignment; Binding Agreement.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties hereto;
provided, however, that Parent may assign or delegate either this Agreement or
any of its rights, interests and obligations hereunder to any direct or indirect
wholly-owned subsidiary of Parent in which event Parent will remain liable
hereunder. This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
Section 8.06 Third Party Beneficiaries.
Nothing in this Agreement, express or implied, is intended to or shall confer
upon any individual or entity other than the parties hereto any rights, benefits
or remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.07 Legal Representation.
The parties acknowledge and agree that (i) they have participated in the
negotiation of this Agreement and no provision of this Agreement shall be
construed against or interpreted to the disadvantage of any party by any
arbitrator, court or government or judicial authority by reason of such parties
having been deemed to have structured or drafted such provisions; (ii) the
parties at all times have had access to and utilized attorneys in the
negotiation, preparation and execution of this Agreement; and (iii) the parties
and their attorneys have had an opportunity to review and analyze this Agreement
for sufficient period of time prior to execution and delivery hereof.
Section 8.08 Specific Performance.
The parties recognize and agree that if for any reason any of the provisions of
this Agreement are not performed in accordance with their specific terms or are
otherwise breached, immediate and irreparable harm or injury would be caused for
which money damages would not be an adequate remedy. Accordingly, each party
agrees that, in addition to any other available remedies, each other party shall
be entitled to an injunction restraining any violation or threatened violation
of the provisions of this Agreement. In the event that any action should be
brought in equity to enforce the provisions of the Agreement, no party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
Section 8.09 Severability.
Any term or provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement or affecting the validity
or enforceability of any of the terms or provisions of this Agreement in any
other jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 8.10 Counterparts.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, each of the parties has signed this Agreement or caused
this Agreement to be executed on its behalf by its officer thereunto duly
authorized, all as of the day and year first above written.
ENVIROKARE COMPOSITE CORP.
Address: 2255 W. Glades Road, Suite 112E
Boca Raton, Florida 33431
By: /s/ John Verbicky
------------------------------
Name: John Verbicky
Title: Chief Executive Officer
THERMOPLASTIC COMPOSITE DESIGNS, INC.
Address: 7400 State Road, #46
Mims, Florida 32754
By: /s/ Dale Polk, Jr.
-------------------------------
Name: Dale Polk, Jr.
Title: Vice President
ENVIROKARE TECH, INC.
Address: 2255 W. Glades Road, Suite 112E
Boca Raton, Florida 33431
By: /s/ John Verbicky
------------------------------
Name: John Verbicky
Title: Chief Executive Officer
By:/s/ Dale Polk, Sr.
------------------------------
DALE POLK, SR.
Address: c/o Thermoplastic Composite Designs, Inc.
7400 State Road, #46
Mims, Florida 32754
By: /s/ Dale Polk, Jr.
--------------------------------
DALE POLK, JR.
Address: 7483 Windover Way
Titusville, Florida