On January 1, 2006, Plasticon International, Inc. (the “Company”) entered into a Share and Membership Interest Purchase Agreement (the “Acquisition Agreement”) with Semco Distribution, Inc., a Nevada corporation (“Semco”), Ultimate Surface, LLC, a Nevada limited liability company (“USL”), and Samel Sem and Yamine Sem (both of the latter, as the “Semco Owners”).
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ITEM 1.01 Entry into a Material Definitive Agreement
Share and Membership Interest Purchase Agreement
On January 1, 2006, Plasticon International, Inc. (the “Company”) entered into a Share and Membership Interest Purchase Agreement (the “Acquisition Agreement”) with Semco Distribution, Inc., a Nevada corporation (“Semco”), Ultimate Surface, LLC, a Nevada limited liability company (“USL”), and Samel Sem and Yamine Sem (both of the latter, as the “Semco Owners”).
Under the terms of the Acquisition Agreement (and except for the then current balance of Semco’s cash, accounts receivable, accounts payable, and accrued liabilities), the Company acquired all of the outstanding common stock of Semco and all of the outstanding membership interests of USL at a purchase price (including the performance payment) of $2,750,000 (the “Purchase Price”).
The Acquisition Agreement provided that the Purchase Price was to be paid as follows:
(1) The Company is to pay a refundable cash payment of $100,000 prior to close of escrow of the Acquisition Agreement (the “Initial Cash Payment”).
(2) The Company is to pay the cash sum of $550,000 upon the close of escrow (with said payment refundable in the event of termination of the Acquisition Agreement).
(3) The Company is to issue shares of the Company’s common stock to the Semco Owners with said shares to have a valuation of $100,000 upon close of escrow.
(4) The Semco Owners are to be paid up to $2,000,000 as a Performance Payment (the “Performance Payment”) to be paid monthly out of 50% of Semco’s net profits before tax by the 10th working day of the month immediately following the month in which said net profits are recorded with the term “net profits” to be a formula determined by the parties prior to the close of escrow on the Acquisition Agreement. The Company’s obligation to pay the Performance Payment is to continue until it is paid in full.
(5) A royalty payment to the Semco Owners equal to 4% of the net profits derived from the then current proprietary technology owned by SEMCO (without including any new or resulting technology developed or established by the Company after the closing of the Acquisition Agreement) (the “Royalty Payment”).The Royalty Payment is to be paid to the Semco Owners and/or their heirs for a period of 20 years from and after the Performance Payment.
The Acquisition Agreement also provided that: (A) the existing USL sales contract and related costs are retained by the Semco Owners and not included in the Acquisition Agreement; (B) all of the shares of Semco and the membership interests of USL acquired pursuant to the Acquisition Agreement are to be held in escrow until the Purchase Price is paid in full; and (C) the Semco Owners agreed to non-compete agreement with the Company.
In addition, the Acquisition Agreement also provided for a five year employment agreement of Samel Sem at an annual compensation of $150,000 payable monthly, a monthly car allowance of $350, reimbursement for approved expenses, and additional compensation of 5% (as an add-on compensation to all USL contracts) as USL’s state contractor license holder until such time as the Company is able to find another qualified employee of Semco to serve and hold a Nevada qualified state contractor’s license. The Company also granted Yamine Sem a one year employment contract at an annual salary of $60,000, payable monthly.
The Acquisition Agreement also included customary representations and warranties by the Company regarding the Company’s corporate organization, books and records, legal compliance, tax returns, absence of adverse financial events, corporate authority, and other matters. The Acquisition Agreement also included customary representations and warranties by Semco, USL, and the Semco Owners regarding the ownership of the Semco stock and the USL membership interests and their transferability, the corporate and limited liability status and organization of both entities, the financial statements of both entities, the books and records of both entities, legal compliance, tax returns, absence of adverse events, employee liabilities, and other matters.
The Acquisition Agreement further required that: (i) Semco undertake its best efforts to secure a one year lease extension on the lease of certain real property used by Semco; and (ii) Semco allow the Company to complete an audit of Semco’s financial statements.
While the Company completed the acquisition of Semco and USL, the closing of the Acquisition Agreement was subject to the following conditions precedent, namely:
(a) The Company’s approval of the audit report and unaudited financial statements of Semco for the year ending December 31, 2004 and for USL for the period ending September 30, 2005.
(b) The completion of the filing of the Company’s Schedule 14C with the U.S. Securities and Exchange Commission with respect to informing the Company’s shareholders of an action to approve the acquisition of Semco and USL and approval of the Acquisition Agreement pursuant to the requirement of Section 14C of the Securities Exchange Act of 1934.
(c) Semco’s delivery, to the Escrow Agent, of a detailed written description of all of Semco’s proprietary technology and products owned as of the close of escrow.
(d) Completion and release of all obligations to the Semco Owners by Semco.
(e) The Company’s receipt of a third party “fairness letter” with respect to the terms of the Acquisition Agreement and the underlying acquisition of Semco and USL.
As a condition subsequent, the Company, Semco, USL, and the Semco Owners agreed that within one year after the closing of the Acquisition Agreement, the Company shall have the right to terminate and cancel the acquisition due to any failure of any conditions (set forth above as (a) through (e)). In that event, Semco shall return the Initial Cash Payment to the Company and repay any loans or advances made by the Company.
The Acquisition Agreement further provided that in the event of any dispute, controversy, or claim, the parties would resolve such matters by arbitration in Lexington, Kentucky under the auspices of the American Arbitration Association.
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