EXECUTED COPY
ACQUISITION AGREEMENT
AMONG
BE AEROSPACE, INC.
AND
THE SELLERS NAMED HEREIN
Dated as of July 21, 1998
Table of Contents
Page
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ARTICLE I - SALE AND PURCHASE OF THE SECURITIES.............................. 2
1.1 Acquisition and Transfer of the
Securities..................................................... 2
1.2 Purchase Price and Payment..................................... 2
1.3 Purchase Price Adjustment...................................... 3
1.4 Allocation of Purchase Price................................... 5
1.5 Registration of Purchaser Shares............................... 6
1.6 Guaranteed Value............................................... 6
1.7 Letter of Credit............................................... 7
1.8 Escrow......................................................... 7
ARTICLE II - THE CLOSING..................................................... 8
2.1 Closing Date................................................... 8
2.2 Proceedings at Closing......................................... 8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE
SELLERS ....................................................... 9
3.1 Organization and Good Standing................................. 9
3.2 Authorization of Agreement..................................... 9
3.3 Capitalization; Shares; Subsidiaries........................... 10
3.4 No Violations; Consents........................................ 11
3.5 Real Property.................................................. 12
3.6 Tangible Personal Property..................................... 14
3.7 Financial Statements; Absence of Certain
Changes........................................................ 16
3.8 Conduct of Business............................................ 16
3.9 Material Contracts............................................. 17
3.10 Intangible Property............................................ 17
3.11 Taxes.......................................................... 18
3.12 Employees and Employee Benefits................................ 21
3.13 Litigation..................................................... 22
3.14 Compliance with Law............................................ 22
3.15 Environmental Matters.......................................... 23
3.16 Insurance...................................................... 24
3.17 Brokers........................................................ 24
3.18 Securities Act................................................. 24
3.19 Inventories.................................................... 24
3.20 No Undisclosed Liabilities..................................... 25
3.21 Receivables.................................................... 25
3.22 Customers...................................................... 26
3.23 Suppliers...................................................... 26
3.24 Key Employees.................................................. 26
3.25 Corporate Books and Records.................................... 27
3.26 Certain Interests.............................................. 27
(i)
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ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER....................................................... 28
4.1 Organization and Good Standing................................. 28
4.2 Authorization of Agreement..................................... 28
4.3 No Violations; Consents........................................ 29
4.4 Litigation..................................................... 29
4.5 Brokers........................................................ 29
4.6 Securities Act................................................. 29
4.7 Condition of the Business...................................... 30
4.8 Representation................................................. 30
ARTICLE V - COVENANTS OF THE SELLERS......................................... 31
5.1 Cooperation; Consents and Conditions........................... 31
5.2 Access to Documents; Opportunity to Ask
Questions...................................................... 31
5.3 Conduct of Business............................................ 32
5.4 Notices of Certain Events...................................... 36
5.5 Confidentiality (Sellers)...................................... 37
ARTICLE VI - COVENANTS OF THE PURCHASER...................................... 38
6.1 Cooperation; Consents and Conditions........................... 38
6.2 Confidentiality (Purchaser).................................... 38
6.3 Notices of Certain Events...................................... 38
ARTICLE VII - COVENANTS RELATING TO EMPLOYMENT AND
EMPLOYEE MATTERS............................................... 39
7.1 Employment and Employee Benefit Matters........................ 39
ARTICLE VIII - CONDITIONS PRECEDENT TO THE PURCHASER'S
OBLIGATIONS................................................... 40
8.1 Representations, Warranties and
Covenants...................................................... 40
8.2 Deliveries by the Sellers to the
Purchaser...................................................... 41
8.3 ESOP Shares.................................................... 42
8.4 No Prohibition................................................. 42
ARTICLE IX - CONDITIONS PRECEDENT TO THE SELLERS'
OBLIGATIONS..................................................... 42
9.1 Representations, Warranties and
Covenants...................................................... 42
9.2 Deliveries by the Purchaser to the
Sellers........................................................ 43
9.3 No Prohibition................................................. 44
ARTICLE X - ADDITIONAL POST-CLOSING COVENANTS................................ 44
10.1 Further Assurances............................................. 44
10.2 Public Announcements........................................... 44
10.3 Books and Records; Personnel................................... 44
(ii)
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10.4 Transitional Assistance........................................ 45
ARTICLE XI - INDEMNIFICATION AND RELATED MATTERS............................. 45
11.1 Survival of Representations, Warranties........................ 45
11.2 Obligations of the Sellers..................................... 46
11.3 Obligations of Purchaser....................................... 47
11.4 Procedure...................................................... 48
11.5 Miscellaneous.................................................. 50
11.6 Notice of Non-Third Party Claims............................... 50
11.7 Certain Limitations............................................ 50
11.8 Maximum Indemnification........................................ 51
11.9 Subrogation.................................................... 51
11.10 Adjustments to Indemnification
Obligations.................................................... 51
11.12 Exclusive Remedy............................................... 52
11.13 No Consequential Damages....................................... 53
ARTICLE XII - TERMINATION.................................................... 53
12.1 Termination.................................................... 53
12.2 Liabilities After Termination.................................. 54
ARTICLE XIII - TAX MATTERS................................................... 54
13.1 Section 338(h)(10) Election; Tax Indemnity..................... 54
13.2 Tax Returns; Audits............................................ 57
13.3 Cooperation and Exchange of Information........................ 62
ARTICLE XIV - MISCELLANEOUS.................................................. 63
14.1 Certain Definitions............................................ 63
14.2 Entire Agreement............................................... 71
14.3 Governing Law.................................................. 71
14.4 Transfer and Other Taxes....................................... 72
14.5 Expenses....................................................... 72
14.6 Table of Contents and Headings................................. 72
14.7 Notices........................................................ 73
14.8 Severability................................................... 74
14.9 Binding Effect; No Assignment.................................. 74
14.10 Amendments..................................................... 74
14.11 Counterparts................................................... 74
(iii)
Exhibits and Schedules
Schedule 1.1 -- Sellers' Ownership of Securities
Schedule 1.2 -- Allocation of Purchaser Common
Stock and Preferred Stock
Schedule 1.4(a) -- Allocation of Purchase Price
Schedule 1.4(b) -- Asset Allocation
Schedule 3.1 -- Foreign Qualifications
Schedule 3.3(a) -- Ownership of Company Shares
Schedule 3.3(b) -- Ownership of Partnership Interests
in SMR Associates
Schedule 3.3(c) -- Ownership of Membership Interests
in SMR Developers
Schedule 3.3(d) -- Capitalization and Ownership of the
SMR Subsidiaries
Schedule 3.3(e) -- Certain Agreements
Schedule 3.4 -- Violations; Required Consents (SMR
Companies)
Schedule 3.5(a) -- SMR Properties
Schedule 3.5(c) -- Real Property Leases Terminating as
a result of the sale of the
Securities
Schedule 3.6(a) -- Personal Property Leases
Schedule 3.6(c) -- Excluded Property
Schedule 3.7 -- Initial Balance Sheet
Schedule 3.8 -- Conduct of Business
Schedule 3.9 -- Material Contracts
Schedule 3.10(a) -- Intangible Assets
Schedule 3.10(c) -- Supplemental Type Certificates and
Part Manufacturer Approvals
Schedule 3.11 -- Tax Matters
Schedule 3.12(a) -- Labor Matters
Schedule 3.12(b)(i) -- Employee Benefit Plans
Schedule 3.12(b)(ii) -- Employment and Severance Contracts
Schedule 3.13 -- Litigation
Schedule 3.14 -- Compliance with Law
Schedule 3.16 -- Insurance
Schedule 3.19 -- Title to Inventory (Exceptions)
Schedule 3.20 -- Disclosed Liabilities
Schedule 3.21 -- Receivables
Schedule 3.22 -- Certain Customer Information
Schedule 3.23 -- Certain Supplier Information
Schedule 3.24 -- Key Employees
Schedule 3.26(a) -- Certain Interests of Directors and
Officers
Schedule 3.26(b) -- Certain Debts Owed by Directors and
Officers
(iv)
Schedule 4.3 -- Violations; Required Consents
(Purchaser)
Schedule 5.3 -- Certain Bonus Payments
Schedule 7.1 -- Certain Healthcare Benefits
Schedule 11.2(c) -- Certain Environmental Matters
Schedule 11.3 -- DOL Settlement
Schedule 13.1(c) -- Estimate of Election Tax Cost
Exhibit A Registration Rights Agreement
Exhibit B Escrow Agreement
Exhibit C Letter of Credit
Exhibit D Standstill and Noncompete Agreement
Exhibit E Share Disposition Agreement
(v)
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT (the "Agreement"), dated as of July 21,
1998, by and among BE Aerospace, Inc., a Delaware corporation (the "Purchaser"),
and the Sellers indicated on the signature pages hereto (collectively, the
"Sellers").
W I T N E S S E T H:
WHEREAS, SMR Aerospace, Inc., an Ohio corporation (the
"Company"), is engaged, through its subsidiaries, in the business of (a)
designing and certifying modifications to commercial aircraft in the interior
reconfiguration, crew rest compartment and airframe modification market sectors
as well as manufacturing related components and (b) manufacturing specialty
products for the aviation industry in the commercial aircraft, business/commuter
aircraft and government/industrial market sectors (collectively, the
"Business"); and
WHEREAS, the Company owns all of the outstanding capital stock
of SMR Holdings, Inc., an Ohio corporation, which in turn owns all of the
outstanding capital stock of SMR Technologies, Inc., an Ohio corporation, and
76.4% of the outstanding capital stock of Flight Structures, Inc., a Washington
corporation ("FSI"); and
WHEREAS, the Company also owns all of the outstanding capital
stock of SMR Aerospace Management Company, Inc., an Ohio corporation, and Plush
Mills, Inc., an Ohio corporation; and
WHEREAS, SMR Associates, an Ohio limited partnership ("SMR
Associates"), and SMR Developers, an Ohio limited liability company ("SMR
Developers"), own certain properties and equipment that are leased to the
Company's subsidiaries for use in the operation of the Business; and
WHEREAS, the Sellers collectively own all of the outstanding
shares of common stock of the Company (the "Shares"), and own all of the limited
and general partnership interests in SMR Associates (the "Partnership
Interests") and all of the membership interests in SMR Developers (the "LLC
Interests" and, together with the Shares and the Partnership Interests, the
"Securities"); and
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WHEREAS, contemporaneously with the execution and delivery of
this Agreement, the Purchaser is entering into an agreement (the "ESOP Purchase
Agreement") with the Flight Structures, Inc. Employee Stock Ownership Plan (the
"FSI ESOP") for the purchase of 23.35% of the outstanding capital stock of FSI
owned by the FSI ESOP (the "ESOP Shares"); and
WHEREAS, the Purchaser desires to acquire the Securities from
the Sellers, and the Sellers desire to sell the Securities to the Purchaser, on
and subject to the terms and conditions set forth in this Agreement; and
WHEREAS, certain capitalized terms used herein are defined in
Section 14.1 hereof.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, and upon the terms and subject to the conditions hereinafter set forth,
the Purchaser and the Sellers hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SECURITIES
1.1 Acquisition and Transfer of the Securities. Upon the terms
and subject to the conditions hereinafter set forth, at the Closing (as defined
in Section 2.1 hereof), each Seller shall sell, assign, transfer, convey and
deliver to the Purchaser, and the Purchaser shall purchase, acquire and accept
from each such Seller, all of such Seller's right, title and interest in and to
the Securities set forth opposite such Seller's name on Schedule 1.1, free and
clear of all Liens.
1.2 Purchase Price and Payment. In consideration of the sale
of the Securities by the Sellers to the Purchaser, the Purchaser shall pay an
aggregate purchase price of $120,000,000.00 (One Hundred Twenty Million
Dollars), subject to adjustment as set forth in Section 1.3, which amount, as so
adjusted, shall be increased at a rate per annum equal to the prime rate of The
Chase Manhattan Bank plus 100 basis points, applied to the portion of the
Purchase Price that has not been converted to cash pursuant to this Section 1.2
and Sections 1.5 and 1.6 from and after October 15, 1998 until the Sellers
receive aggregate Net Proceeds (as defined in Section 1.6(b)) equal
2
to such amount, as so adjusted and increased (the "Purchase Price"). The
Purchaser shall pay the Purchase Price by delivering to the Sellers and the
Escrow Agent pursuant to the Escrow Agreement referenced in Section 1.8 hereof
on the Closing Date (i) an aggregate of 4,000,000 shares of the Purchaser's
common stock, par value $.01 per share (the "Purchaser Common Stock") or, at the
option of the Purchaser, (ii) a combination of cash, Purchaser Common Stock and
non-voting convertible preferred stock of the Purchaser ("Purchaser Preferred
Stock"), provided, that the number of shares of Purchaser Common Stock into
which such Purchaser Preferred Stock are convertible, when aggregated with the
Purchaser Common Stock delivered to the Sellers and the Escrow Agent on the
Closing Date, shall equal 4,000,000. The Purchaser Common Stock and any
Purchaser Preferred Stock shall be allocated among the Sellers and the Escrow
Agent as set forth in Schedule 1.2. To the extent the product of (i) 4,000,000
and (ii) the average of the per share closing prices as reported on the NASDAQ
National Market System of shares of Purchaser Common Stock for the 20
consecutive trading days ending on (and including) the first trading day
immediately preceding the Closing Date is less than $120,000,000.00 (One Hundred
Twenty Million Dollars), then Purchaser shall pay the amount of such deficiency
on the Closing Date by wire transfer of immediately available funds to accounts
designated for such purpose by the Sellers and the Escrow Agent (the "Cash
Payment"). The Cash Payment shall be allocated among the Sellers and the Escrow
Agent in the same manner as the allocation of the Purchaser Common Stock and
Purchaser Preferred Stock set forth on Schedule 1.2. For purposes of this
Agreement, the shares of Purchaser Common Stock delivered to the Sellers and the
Escrow Agent at the Closing and the shares of Purchaser Common Stock into which
the Purchaser Preferred Stock so delivered at the Closing, if any, are
convertible are collectively referred to as the "Purchaser Shares."
1.3 Purchase Price Adjustment. (a) As soon as practicable (but
in no event later than 60 days) following the Closing Date, the Sellers shall
prepare and deliver to the Purchaser a consolidated and combined balance sheet
for the Company, SMR Associates and SMR Developers as of the Closing Date (the
"Closing Balance Sheet"), which shall include the Sellers' computation of the
Net Worth and the Debt and Related Costs as of the Closing Date. As used herein,
"Net Worth" as of the Closing Date means the aggregate shareholders' equity,
partners' capital and members' capital of the Company, SMR Associates and SMR
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Developers on such date as reflected on the Closing Balance Sheet. The "Debt and
Related Costs" as of the Closing Date means (i) the aggregate of the current
portion of long-term bank debt, current portion of capital lease obligations,
long-term bank debt (less current portion) and capital lease obligations (less
current portion) on such date plus (ii) all costs incurred or accrued by Sellers
in connection with the transactions contemplated hereby and the ESOP Purchase
Agreement, in each case as reflected on the Closing Balance Sheet. The Closing
Balance Sheet shall (i) fairly present the Net Worth and the Debt and Related
Costs as at the close of business on the Closing Date in accordance with GAAP
and on a basis consistent with the Initial Balance Sheet, and (ii) be prepared
as if the Closing Date were a fiscal year-end. The Purchaser shall provide the
Sellers and their representatives with access to the books and records of the
Company, SMR Associates and SMR Developers necessary to enable the Sellers to
prepare the Closing Balance Sheet.
(b) The Purchaser shall have a period of 30 days to review the
Closing Balance Sheet and the Sellers' computation of the Net Worth and the Debt
and Related Costs as of the Closing Date following delivery of the Closing
Balance Sheet by the Sellers. The Purchaser may dispute any amounts reflected in
the Sellers' computation of the Net Worth and the Debt and Related Costs as of
the Closing Date by giving notice in writing to the Sellers, specifying each of
the disputed items and setting forth in reasonable detail the basis for such
dispute.
(c) If a notice of disagreement shall be timely delivered
pursuant to Section 1.3(b) hereof, the parties shall, during the 10 days
following such delivery, use their reasonable best efforts to reach agreement on
the disputed items or amounts in order to determine, as may be required, the
amount of the Net Worth and the Debt and Related Costs as of the Closing Date.
If, during such period, the parties are unable to reach such agreement, they
shall promptly thereafter cause Arthur Andersen LLC, or if such firm declines to
act in such capacity, such other firm of independent nationally recognized
accountants mutually chosen by the Purchaser and the Sellers (the "Accounting
Referee") promptly to review this Agreement and the disputed items or amounts
for the purpose of calculating the Net Worth and the Debt and Related Costs as
of the Closing Date. In making such calculation, the Accounting Referee shall
consider only those items or amounts in the Closing Balance Sheet or the
Sellers' computation of the Net Worth and the
4
Debt and Related Costs as to which the Purchaser has disagreed. The Accounting
Referee shall deliver to the Sellers and the Purchaser, as promptly as
practicable, a report setting forth such calculation. Such report shall be final
and binding upon the parties hereto. The cost of such review and report shall be
borne by the party whose calculation of the disputed item is furthest from the
Accounting Referee's calculation. As used herein, "Final Net Worth" and "Final
Debt and Related Costs" means (i) the Sellers' computation of the Net Worth and
the Debt and Related Costs, if no notice of disagreement is delivered by the
Purchaser during the period provided in Section 1.3(b), or (ii) if such a notice
of disagreement is delivered by the Purchaser, either (A) as agreed by the
Sellers and the Purchaser or (B) as shown in the Accounting Referee's
calculation delivered pursuant to this Section 1.3(c).
(d) If the Final Net Worth is less than $16,509,687, then the
Purchase Price shall be reduced by such difference. If the Final Net Worth is
greater than $16,509,687, then the Purchase Price shall be increased by such
excess.
(e) If the Final Debt and Related Costs is greater than
$6,700,000.00, then the Purchase Price shall be reduced by such excess. There
shall be no adjustment under this Section 1.3(e) if the Final Debt and Related
Costs is less than $6,700,000.00.
1.4 Allocation of Purchase Price. (a) The Purchase Price shall
be allocated among the Partnership Interests, the LLC Interests and the Shares
in the manner set forth on Schedule 1.4(a).
(b) In the event the Sellers and the Purchaser make the
Election (as defined in Section 13.1 hereof), the Purchase Price allocated to
the Shares on Schedule 1.4(a), and the liabilities and other relevant items of
the SMR Subsidiaries (other than FSI and its Subsidiaries) to the extent
provided in the Treasury Regulations promulgated under Section 338(h)(10) of the
Code, shall be further allocated among the assets of the SMR Subsidiaries (other
than FSI and its Subsidiaries) in the manner set forth on Schedule 1.4(b).
(c) The Purchaser and the Sellers shall prepare and file all
tax returns relating to the sale of the Securities hereunder in a manner
consistent with the
5
allocations set forth on Schedule 1.4(a) and, if the
Election is made, Schedule 1.4(b).
1.5 Registration of Purchaser Shares. Purchaser shall use
commercially reasonable efforts to file a registration statement permitting the
public sale of the Purchaser Shares as soon as reasonably practicable after the
Closing Date, and to cause such registration statement (which shall include
interim financial statements of the Purchaser and its subsidiaries for the
fiscal quarter ending August 31, 1998) to become effective as soon as
practicable after August 31, 1998. Purchaser shall use commercially reasonable
efforts to effectuate a fully underwritten public offering of common stock of
Purchaser which will include such Purchaser Shares (the "Public Offering") by
one or more underwriters to be selected by Purchaser. The Sellers shall be
required to sell as many Purchaser Shares in the Public Offering as the
underwriter(s) and Purchaser shall request, up to the entire amount of Purchaser
Shares received by them in connection with the transactions contemplated hereby
(including shares held in escrow pursuant to the arrangements described in
Section 1.8 hereof). In the event that not all of the Purchaser Shares received
by the Sellers or held in escrow are sold in the Public Offering,
notwithstanding the reasonable commercial efforts of Purchaser to effectuate the
Public Offering, Purchaser shall use commercially reasonable efforts to file and
cause to become effective a shelf registration (the "Shelf Registration") with
respect to any unsold shares as soon as reasonably practicable after the
termination of the Public Offering and maintain such Shelf Registration in
effect through December 31, 1998 to facilitate the sale of such shares.
Purchaser Shares shall be sold under the Shelf Registration as directed and
approved by Purchaser, utilizing brokers or underwriters approved by Purchaser.
The obligation of the parties described in this Section 1.5 are to be more fully
described in the Registration Rights Agreement.
1.6 Guaranteed Value. (a) In the event that the aggregate Net
Proceeds (as defined below) received prior to December 31, 1998 by the Sellers
and the Escrow Agent from sales in the Public Offering or pursuant to the Shelf
Registration of the Purchaser Shares plus the Cash Payment, if any, are less
than the Purchase Price (including any increase in the Purchase Price after
October 15, 1998 as provided in Section 1.2), then, on December 31, 1998, (i)
Purchaser shall pay to Sellers and the Escrow Agent an
6
aggregate amount equal to the Purchase Price minus the sum of the Net Proceeds
previously received by the Sellers and the Cash Payment, if any. In the event
that the aggregate Net Proceeds received by the Sellers and the Escrow Agent
from the sale of Purchaser Shares plus the Cash Payment, if any, exceeds the
Purchase Price, all such excess Net Proceeds shall be refunded to Purchaser. In
either event, the Sellers and Escrow Agent shall transfer to Purchaser all
Purchaser Shares that they have not previously sold.
(b) As used herein, "Net Proceeds" means (x) in the case of an
underwritten sale of Purchaser Shares, the gross proceeds received by the
Sellers and the Escrow Agent in such sale net of underwriter's discounts,
commissions and other expenses paid by the Sellers (whether incurred by the
Sellers, Purchaser, the underwriters or any advisors, and including, without
limitation, accounting and legal fees) in connection with such sale and (y) in
the case of any other sale of such shares, the gross proceeds received by the
Sellers and the Escrow Agent net of selling commissions paid in connection with
such sale and all other expenses paid by the Sellers (whether incurred by the
Sellers, Purchaser, the placement agents or any advisors, and including, without
limitation, accounting and legal fees) in connection with such sale.
1.7 Letter of Credit. At the Closing, Purchaser shall deliver
to Sellers an irrevocable letter of credit in the form of Exhibit C (the "Letter
of Credit") in the amount of $120,000,000.00 (One Hundred Twenty Million
Dollars) (which amount shall automatically adjust to reflect the adjustment
provided for in Section 1.3 and to reflect the increase, if any, provided for in
Section 1.2) in favor of the Sellers securing Purchaser's obligation under
Section 1.6. The Letter of Credit shall be issued by The Chase Manhattan Bank or
another financial institution acceptable to Sellers.
1.8 Escrow. At the Closing, Purchaser shall hold back from
Sellers and deposit 400,000 Purchaser Shares and 10% of the Cash Payment, if
any, into an escrow account to be established with an escrow agent (the "Escrow
Agent") mutually acceptable to the parties and pursuant to an escrow agreement,
dated the Closing Date, substantially in the form of Exhibit B (the "Escrow
Agreement"), which Escrow Agent will hold such property as provided therein as
security for the obligations of the Sellers under Section 11.2(b) hereof. In the
Public Offering and any other sale of Purchaser
7
Shares, shares held in escrow will be sold only after all other shares have been
sold. The proceeds of the sales of shares held in escrow also shall be held in
escrow and invested in investment grade securities as designated by the Sellers.
Following the sales of Purchaser Shares provided for in Section 1.5 and the cash
payments, if any, by Purchaser pursuant to Section 1.6 and the refund, if any,
referred to in the last sentence of Section 1.6(a), the Escrow Agent shall hold
10% of the Purchase Price.
ARTICLE II
THE CLOSING
2.1 Closing Date. The Closing shall take place at the offices
of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153 at
10:00 A.M., on the second business day following the satisfaction or waiver of
the last of the conditions to Closing set forth in Articles VIII and IX hereof,
or at such other place and at such other time and date as may be mutually agreed
upon by the Purchaser and the Sellers. The date of the Closing is referred to in
this Agreement as the "Closing Date." Notwithstanding the foregoing, the parties
agree that the Purchaser intends, for financial reporting purposes, to treat the
Closing and transfer of effective control of the SMR Companies as if it had
occurred on August 1, 1998.
2.2 Proceedings at Closing. All proceedings to be taken and
all documents to be executed and delivered by any of the Sellers and the Company
in connection with the consummation of the transactions contemplated hereby
shall be reasonably satisfactory in form and substance to the Purchaser and its
counsel. All proceedings to be taken and all documents to be executed and
delivered by the Purchaser in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the Sellers, the Company and their counsel. All proceedings to be
taken and all documents to be executed and delivered by all parties at the
Closing shall be deemed to have been taken, executed and delivered
simultaneously, and no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller jointly and severally represents and warrants to
the Purchaser as follows:
3.1 Organization and Good Standing. Each of the SMR Companies
is a corporation, limited partnership or limited liability company, as the case
may be, validly existing and in good standing under the laws of its jurisdiction
of incorporation or formation. Each of the SMR Companies has the requisite
corporate, partnership or limited liability company, as the case may be, power
and authority to carry on its business as it is now being conducted and is duly
qualified or authorized to do business and is in good standing under the laws of
(i) each jurisdiction in which it owns or leases real property and (ii) each
other jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification or authorization, except where the
failure to be so duly qualified or authorized and in good standing would not
have a Material Adverse Effect. Schedule 3.1 sets forth a true, correct and
complete list of each jurisdiction in which any of the SMR Companies is
qualified or authorized to do business as a foreign corporation, limited
partnership or limited liability company, as the case may be. The Sellers have
made available to the Purchaser complete and correct copies of the charter,
by-laws, limited partnership agreement, operating agreement, or other
organizational documents, as applicable, of each of the SMR Companies, and all
amendments thereto.
3.2 Authorization of Agreement. This Agreement has been, and
each other agreement, document, instrument or certificate contemplated by this
Agreement to be executed by such Seller in connection with the consummation of
the transactions contemplated by this Agreement (all such other agreements,
documents, instruments and certificates required to be executed by such Seller
being hereinafter referred to, collectively, as such "Seller's Documents"), will
be at or prior to the Closing, duly executed and delivered by such Seller, and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) this Agreement constitutes, and such Seller's Documents when
so executed and delivered will constitute, legal, valid and binding obligations
of such Seller, enforceable against such Seller in accordance with their
respective terms, subject to
9
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.3 Capitalization; Shares; Subsidiaries.
(a) The authorized capital stock of the Company consists of
shares of common stock, par value $.01 per share (the "Common Stock"), of which
300 Shares are issued and outstanding and held of record by the holders set
forth on Schedule 3.3(a).
(b) Schedule 3.3(b) sets forth each of the limited and general
partners of SMR Associates and the percentage partnership interest in SMR
Associates owned by each such partner. The partnership interests in SMR
Associates are not documented by certificates or other documentary evidence.
(c) Schedule 3.3(c) sets forth each of the members of SMR
Developers and the percentage limited liability company interest in SMR
Developers owned by each such member. The limited liability company interests in
SMR Developers are not documented by certificates or other documentary evidence.
(d) Schedule 3.3(d) sets forth with respect to each SMR
Subsidiary, the number of shares of its authorized capital stock, the number of
shares thereof issued and outstanding, and the record holders thereof. Certain
individuals other than the Sellers own .25% of the outstanding stock of FSI, and
the purchase by Purchaser of such FSI shares is not a condition to the Closing
of the transactions contemplated hereby.
(e) The outstanding equity interests in each of the SMR
Companies are validly issued, fully paid and non-assessable and are owned by the
holders thereof free and clear of all Liens. Except as set forth on Schedule
3.3(e), there are no outstanding options, warrants, calls, rights, commitments
or agreements of any kind to which any of the SMR Companies is a party or by
which it is bound obligating it to issue, deliver or sell, or cause to be
issued, delivered or sold, additional equity interests in such SMR Company, or
any securities convertible or exchangeable into or evidencing the right to
purchase any such equity
10
interests, or obligating it to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth on Schedule
3.3(e), there are no outstanding contractual obligations of any of the SMR
Companies to repurchase, redeem or otherwise acquire any of its equity
interests.
(f) Such Seller is the record and beneficial owner of the
Securities as shown on Schedule 1.1, free and clear of Liens, and has all right,
power and authority to sell, convey, assign, transfer and deliver to Purchaser
good title to the Securities owned by him. Upon consummation of the transactions
contemplated by this Agreement and registration of the Securities in the name of
the Purchaser on the stock records of the Company, the membership interests
records of SMR Developers and the partnership interests records of SMR
Associates, as applicable, the Purchaser, assuming it shall have purchased the
Securities for value and in good faith and without notice of any adverse claim,
will own all of the issued and outstanding (i) capital stock of the Company,
(ii) membership interests of SMR Developers and (iii) partnership interests of
SMR Associates, free and clear of all Liens.
(g) Except for interests in the SMR Subsidiaries, neither the
Company nor any other SMR Company has any Subsidiaries, nor does any of them own
or hold beneficially any shares of any class in the capital of any corporation
nor does any of them beneficially own any interests in any partnerships,
business trusts or joint ventures or in any other unincorporated trade or
business enterprises.
(h) The SMR Companies include all of the operating entities
and assets controlled directly or indirectly by the Sellers related to the
Business.
3.4 No Violations; Consents. None of the execution and
delivery by such Seller of this Agreement and such Seller's Documents, or the
consummation of the transactions contemplated hereby or thereby, or compliance
by such Seller with any of the provisions hereof or thereof will (a) conflict
with, or result in the breach of, any provision of the certificate of
incorporation, by-laws, limited partnership agreement, certificate of formation,
operating agreement or other governing charter document of any SMR Company or
any trust document of any Seller, (b) assuming compliance with the matters
referred to on
11
Schedule 3.4, constitute a violation of any Law applicable to any SMR Company or
any Seller, (c) result in the creation of any Lien (other than any Lien in favor
of the Purchaser) upon the Securities or any of the assets of any of the SMR
Companies, or (d) except as set forth on Schedule 3.4, conflict with, result in
a breach of, or give rise to any termination or right to terminate under any
Real Property Lease, Personal Property Lease or Material Contract, except for
such conflicts, breaches and terminations as would not have a Material Adverse
Effect. Except as set forth on Schedule 3.4, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Governmental Body is required on the part of any SMR
Company or any Seller in connection with the execution, delivery and performance
of this Agreement or the Sellers' Documents.
3.5 Real Property. (a) Schedule 3.5 sets forth
a complete list of (i) all real property and interests in
real property owned in fee by the SMR Companies (individually, an "Owned
Property" and, collectively, the "Owned Properties"), and (ii) all real property
and interests in real property leased or subleased by the SMR Companies
(individually, a "Real Property Lease" and, collectively, the "Real Property
Leases"; the real properties specified in such leases, together with the Owned
Properties, being referred to herein individually as an "SMR Property" and
collectively as the "SMR Properties"). Each of the SMR Companies has good and
marketable fee title to the Owned Properties owned by it, free and clear of all
Liens of any nature whatsoever except (A) Liens set forth on Schedule 3.5 and
(B) Permitted Exceptions. The SMR Properties constitute all interests in real
property currently used or currently held for use in connection with the
Business and which are necessary for the continued operation of the Business as
currently conducted. Each of the SMR Companies has a valid and enforceable
leasehold interest under each of the Real Property Leases to which it is a
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and none of the SMR
Companies is in material default under any of the Real Property Leases or within
the 12-month period ending on the date hereof has received any written notice of
default or event that with notice or lapse of time, or both, would constitute a
default under any of
12
the Real Property Leases. To such Seller's knowledge, no third party is in
material breach of a Real Property Lease. The Sellers have delivered or
otherwise made available to the Purchaser true, correct and complete copies of
(i) all deeds, title reports and surveys for the Owned Properties presently in
the possession of Sellers or the SMR Companies and (ii) the Real Property
Leases, together with all amendments, modifications or supplements, if any,
thereto.
(b) There are no latent defects or adverse physical conditions
affecting the SMR Properties or any the facilities, structures, buildings,
erections, improvements, fixtures, fixed assets and personalty of a permanent
nature annexed, affixed or attached to, located on, or forming part of the SMR
Properties, except for such defects or conditions as would not have a Material
Adverse Effect. Each SMR Company is in peaceful and undisturbed possession of
each parcel of SMR Property, and there are no contractual or legal restrictions
that preclude or restrict in a material way the ability to use the premises for
the purposes for which they are currently being used.
(c) Except as otherwise disclosed in Schedule 3.5(c) with
respect to each such Real Property Lease: (i) none of the SMR Companies has
received any notice of cancellation or termination and no lessor has any right
of termination or cancellation except in connection with the default of any SMR
Company thereunder and (ii) none of the SMR Companies has granted to any other
Person any rights, adverse or otherwise, thereunder. Except as otherwise set
forth in Schedule 3.5(c) each Real Property Lease will not cease to be legal,
valid, binding, enforceable, and in full force and effect on terms identical to
those currently in effect as a result of the consummation of the transactions
contemplated by this Agreement.
(d) No improvements on the SMR Properties and none of the
current uses and conditions thereof violate any applicable deed restrictions or
other applicable covenants, restrictions, agreements, existing site plan
approvals, zoning or subdivision regulations or urban redevelopment plans as
modified by any duly issued variances, except for such violations as would not
have a Material Adverse Effect. No permits, licenses or certificates pertaining
to the ownership or operation of all improvements on the SMR Properties, other
than those which are transferable with the SMR Property, are required by any
Governmental Authority having jurisdiction over the SMR Property, except for
such
13
permits, licenses or certificates the failure to have or transfer would not have
a Material Adverse Effect.
(e) Except for leases or subleases entered into by and between
SMR Companies, the rental set forth in each Real Property Lease is the actual
rental being paid, and there are no separate agreements or understandings with
respect to the same.
(f) The SMR Companies have, and upon the Closing the SMR
Companies will have, the full right to exercise any renewal options contained in
the Real Property Leases on the terms and conditions contained therein.
3.6 Tangible Personal Property. (a) Schedule 3.6(a) sets forth
all leases of personal property ("Personal Property Leases") involving annual
payments in excess of $15,000 relating to personal property used in the Business
by the SMR Companies or to which any of the SMR Companies is a party or by which
the properties or assets of any such SMR Company is bound. The Sellers have
delivered or otherwise made available to the Purchaser true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications or supplements thereto, if any.
(b) Each of the SMR Companies has a valid and enforceable
leasehold interest under each of the Personal Property Leases to which it is a
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and none of the SMR
Companies is in material default under any of the Personal Property Leases or
within the 12 month period ending on the date hereof has received any written
notice of default or event that with notice or lapse of time, or both, would
constitute a default under any of the Personal Property Leases. To such Seller's
knowledge, no third party is in material breach of a Personal Property Lease.
(c) Each of the SMR Companies has good and marketable title to
all of the items of tangible personal property owned by it and reflected in the
Initial Balance Sheet (except as sold or disposed of subsequent to the date
thereof in the ordinary course of business consistent with past practice and the
provisions of this Agreement) (the
14
"Tangible Personal Property"), free and clear of Liens other than Permitted
Exceptions. The parties acknowledge that the personal property listed on
Schedule 3.6(c) is property of the Sellers and excluded from the transactions
contemplated hereby.
(d) Except for Intangible Assets (which are the subject of
Section 3.10), each SMR Company owns, leases or has the legal right to use all
the properties and assets, including, without limitation, the SMR Properties and
the Tangible Personal Property, used by it in the conduct of the Business or
otherwise owned, leased or used by such SMR Company and, with respect to
contract rights, is a party to and enjoys the right to the benefits (subject to
the performance of its obligations) of all contracts, agreements and other
arrangements used by such SMR Company or in or relating to the conduct of the
Business (all such properties, assets and contract rights being the "Assets").
(e) The Assets and the Intangible Assets constitute all the
properties, assets and rights forming a part of, used or held in, and all such
properties, assets and rights as are necessary in the conduct of, the Business
as it is currently conducted. At all times since May 31, 1998, each SMR Company
has caused the Assets to be maintained in accordance with the SMR Companies past
business practice, and all the Assets are in good operating condition and repair
and are suitable for the purposes for which they are used and intended, subject
to normal wear and tear and except for such failure to be in good operating
conditions and repair as would not have a Material Adverse Effect.
(f) Following the consummation of the transactions
contemplated by this Agreement, each SMR Company will continue to own, pursuant
to good and marketable title, or lease, under valid and subsisting leases, or
otherwise retain its respective interest in the Assets or Intangible Assets
without incurring any penalty or other adverse consequence, including, without
limitation, any increase in rentals, royalties, or licenses or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement. Immediately following the Closing, each SMR
Company shall own and possess all documents, books, records, agreements and
financial data of any sort used by such SMR Company in the conduct of the
Business or otherwise.
15
3.7 Financial Statements; Absence of Certain Changes. (a)
Attached as Schedule 3.7 is the consolidated and combined balance sheet of the
SMR Companies (the "Initial Balance Sheet") as at May 31, 1998 (the "Balance
Sheet Date"). The Sellers have furnished the Purchaser with a consolidated and
combined balance sheet as at December 31, 1997 and December 31, 1996, and the
related consolidated and combined statements of income, retained earnings,
partners' capital and members' capital, and cash flows for the years then ended
(collectively with the Initial Balance Sheet, the "Financial Statements"),
certified by Zalick, Torok, Kirgesner, Cook & Co. Such Financial Statements, (i)
were prepared in accordance with the books of account and other financial
records of the SMR Companies, (ii) have been prepared in accordance with GAAP
applied on a basis consistent with the past practices of the SMR Companies, and
(iii) fairly present in accordance with GAAP the consolidated and combined
financial condition and results of the operations of the SMR Companies and the
changes in their financial position at such dates and for such periods subject,
in the case of the Initial Balance Sheet, to customary year-end adjustments and
(iv) include all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation of the consolidated financial condition of
the SMR Companies and the results of operations of the SMR Companies as of the
dates thereof or for the periods covered thereby.
(b) The books of account and other financial records of the
SMR Companies: (i) reflect all items of income and expense and all assets and
Liabilities required to be reflected therein in accordance with GAAP applied on
a basis consistent with the past practices of the SMR Companies, (ii) are in all
material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices.
(c) Since December 31, 1997, there has been no Material
Adverse Change with respect to the SMR Companies.
3.8 Conduct of Business. Since December 31, 1997, the Business
has been operated in the ordinary course, consistent with past practice and,
since the May 31, 1998, except as set forth in Schedule 3.8 or as contemplated
or expressly required or permitted by this Agreement no SMR Company has taken
any action which, if taken subsequent to the execution of this Agreement and on
or prior to the
16
Closing Date, would constitute a breach of the Sellers' agreements set forth in
Section 5.3.
3.9 Material Contracts. Except as set forth in Schedules 3.5,
3.6, 3.9 or 3.10, none of the SMR Companies has or is bound by (a) any Contract
relating to the employment of any Person, (b) any Contract limiting the freedom
of any of the SMR Companies to engage in any line of business or to compete with
any other Person or (c) any Contract which involves payment by any of the SMR
Companies of $100,000 or more in any calendar year and is not cancelable by the
SMR Company without penalty within 30 days after notice is given to the
counterparty thereto, (d) any Contract relating to a capital lease obligation or
indebtedness for borrowed money (e) any broker, distributor, dealer,
manufacturer's representative, franchise, agency, sales promotion or advertising
Contract, or (f) any management Contracts or Contracts with independent
contractors or consultants, which are not cancelable without penalty or further
payment and without more than 30 days notice (the Contracts specified in clauses
(a) through (f) above being referred to as "Material Contracts"). The Sellers
have delivered or otherwise made available to the Purchaser true, correct and
complete copies of the Material Contracts, together with all amendments,
modifications or supplements thereto, if any. Each of the SMR Companies has a
valid and enforceable interest under each of the Material Contracts to which it
is a party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and none
of the SMR Companies is in material default under any of the Material Contracts
or within the 12 month period ending on the date hereof has received any written
notice of default or event that with notice or lapse of time, or both, would
constitute a default under any of the Material Contracts. To each Seller's
knowledge, except as disclosed in Schedule 3.9, no third party is in material
breach of a Material Contract.
3.10 Intangible Property. (a) Schedule 3.10 (a) sets forth a
list of all patents, trademarks, trade names, service marks and copyrights owned
by or licensed to any of the SMR Companies and used in the Business (the
"Intangible Assets"), as well as a list of all registrations thereof and pending
applications therefor. Each of the Intangible
17
Assets owned by an SMR Company is owned free and clear of Liens (other than
Permitted Exceptions) and such SMR Company has good title thereto. The SMR
Companies collectively have adequate licenses or other valid rights to use all
of the Intangible Assets which they do not own and which are material to the
conduct of the Business. Each SMR Company's (i) use of the Intangible Assets and
(ii) conduct of the Business does not infringe upon or violate with any
intellectual property rights of any other Person, except for such matters as
would not have a Material Adverse Effect. Such Seller is not aware that any
third party is infringing or violating the Intangible Assets.
(b) Each SMR Company possesses and maintains all job files,
drawings, engineering and other reports, manuals, customer specifications,
manufacturing process documents, proprietary parts kits, and product
installation drawings necessary (i) for the conduct of the Business as currently
conducted and (ii) for the manufacture, installation and sale of all products
currently manufactured, installed or marketed by each SMR Company and the
provision of all services provided by each SMR Company.
(c) Set forth on Schedule 3.10(c) is a list of all
Supplemental Type Certificates and Parts Manufacturer Approvals held by the SMR
Companies. All such Supplemental Type Certificates and Parts Manufacturer
Approvals are held by each SMR Company free and clear of all Liens (other than
Permitted Exceptions). Each SMR Company has all (i) Supplemental Type
Certificates, (ii) original equipment manufacturer certifications, and (iii)
Parts Manufacturer Approvals, necessary for the manufacture, installation and
sale of all products currently manufactured, installed or marketed by each SMR
Company and the provision of all services provided by each SMR Company.
3.11 Taxes. (a) Each of the SMR Companies has timely filed, or
there has been filed on its behalf, all material federal, state, local and
foreign Tax Returns which, to the best knowledge (as defined in this Section
3.11(a)) of the Sellers, are required to be filed by, or with respect to, the
SMR Companies on or prior to the date hereof (taking into account any extension
of time to file granted to or on behalf of any of the SMR Companies)
(collectively, the "Returns"), and all such Tax Returns are true, correct and
complete in all material respects. Except as set forth on Schedule 3.11, each of
the SMR Companies (i)(A) has paid (or there has been paid on their behalf) all
18
Income Taxes and all material other Taxes that are due from it or (B) has
provided for all such Taxes on its Financial Statements in accordance with GAAP,
and (ii) will provide for such Taxes (other than Taxes for which Purchaser will
be liable pursuant to Section 11.3(f)) on the Closing Balance Sheet in
accordance with the methodology used in preparing the Initial Balance Sheet and
in accordance with GAAP. Except as set forth in Schedule 3.11, all federal,
state, local and foreign income taxes or franchise or other Taxes based on
income (including interest and penalties) ("Income Taxes") shown to be due and
payable on the Returns have been paid. For purposes of this Section 3.11,
Seller's "knowledge" means the actual knowledge of Seller without any duty to
make any inquiry.
(b) Except as disclosed on Schedule 3.11, (i) the Company has
not executed any waivers or extensions of the applicable statutory period of
limitation for Taxes of the SMR Companies for any taxable period, which waivers
or extensions currently are pending, and (ii) no deficiency assessment or
proposed adjustment with respect to any Tax liability of any of the SMR
Companies for any taxable period is pending or, to the knowledge of the Company
and such Seller, threatened.
(c) At all times, the Company has had in effect a valid
election under Section 1362(a) of the Code to be taxed as an S corporation for
federal income tax purposes (an "S Election") and, to the best of the Sellers'
knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11,
(i) a comparable election in each state in which it conducts business or is
subject to Income Tax, and (ii) a comparable election in each locality in which
it both conducts business and is subject to a local Income Tax. The Company has
not received written notice of and is not aware of any proposal from the IRS or
any tax authority to disallow such S Election or such comparable election for
any taxable year. At all times until such SMR Subsidiary became a direct or
indirect subsidiary of the Company, each of the SMR Subsidiaries, except for FSI
and its Subsidiaries, had in effect a valid election under Section 1362 of the
Code to be treated as an S corporation for federal income tax purposes and, to
the best of the Sellers' knowledge (as defined in Section 3.11(a)), except as
set forth in Schedule 3.11, (i) a comparable election in each state in which it
conducts business or is subject to Income Tax, and (ii) a comparable election in
each locality in which it both conducts business and is subject to a local
Income Tax.
19
Since the SMR Subsidiaries, other than FSI and its Subsidiaries, became direct
or indirect subsidiaries of the Company, the Company has had in effect for each
such SMR Subsidiary a valid election to be taxed as a "qualified subchapter S
subsidiary" for federal income tax purposes and, to the best of the Sellers'
knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11,
and to the extent such election is provided for under applicable Tax law, (i) a
comparable election in each state in which it conducts business or is subject to
Income Tax, and (ii) a comparable election in each locality in which it both
conducts business and is subject to a local Income Tax. The Company has not
received written notice of and is not aware of any proposal from the IRS or any
tax authority to disallow any of such elections described above for any such SMR
Subsidiary for any taxable year.
(d) Each of SMR Associates and SMR Developers qualifies and
since its inception has always qualified as a partnership for U.S. federal
income tax purposes and is not and has not been taxable as a corporation for
U.S. federal income tax purposes under Section 7704 of the Code or otherwise.
(e) None of the SMR Companies has been a member of any
affiliated group for federal income Tax purposes with any other corporation
(other than another SMR Company). None of the SMR Companies has filed a Tax
Return on a consolidated, combined or unitary basis with any other corporation
(other than another SMR Company). None of the SMR Companies is a party to any
Tax allocation or Tax sharing agreement pursuant to which it will have any
obligation to make any payments after the Closing Date. Sellers are not aware
that the receipt of the Purchase Price for the Securities by the Sellers in the
manner provided by this Agreement (assuming the Election is made and
consideration is allocated to a covenant not to compete as provided in Schedule
1.4(b) hereof) should result in the imposition of a greater amount of Tax
liability on the Sellers than the Tax liability that Sellers would have incurred
were they to have received the amount of such Purchase Price for the Securities
in cash at the Closing (assuming the Election is made and consideration is
allocated to a covenant not to compete as provided in Schedule 1.4(b) hereof).
(f) For purposes of this Agreement: (i) "Tax" or "Taxes" means
any and all taxes, fees, levies, duties,
20
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amount imposed with respect
thereto) imposed by any government or taxing authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, escheat, stamp, transfer, value added or gains taxes,
license, registration and documentation fees; and customs' duties, tariffs and
similar charges; and (ii) "Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.
3.12 Employees and Employee Benefits. (a) Except as set forth
in Schedule 3.12(a), (i) none of the SMR Companies is a party to any collective
bargaining agreement applicable to any of its employees, (ii) none of the
employees of any of the SMR Companies is represented by any labor organization,
(iii) there is no labor strike, work stoppage or slowdown pending against any of
the SMR Companies and no pending lockout by any of the SMR Companies, (iv) none
of the SMR Companies is in breach or is otherwise failing to comply with the
provisions of any collective bargaining or union contract, except for such
breaches or failures as would not have a Material Adverse Effect and there are
no grievances outstanding against any SMR Company under any such agreement or
contract which could have a Material Adverse Effect; (v) there are no unfair
labor practice complaints pending against any SMR Company before the National
Labor Relations Board or any other Governmental Body or any current union
representation questions involving employees of any SMR Company which could have
a Material Adverse Effect; (vi) each SMR Company currently is in compliance with
all applicable Laws relating to the employment of labor, including those related
to wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by the appropriate Governmental Body and has withheld
and paid to the appropriate Governmental Body or is holding for payment not yet
due to such Governmental Body all amounts required to be withheld from employees
or such SMR Company and is not liable for any arrears of wages, taxes, penalties
or other sums for failure to comply with any of the foregoing, except for such
matters described in this clause (vi), as would not
21
have a Material Adverse Effect; and (vii) each SMR Company has paid in full to
all its employees or adequately accrued for in accordance with GAAP all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees. To each Seller's knowledge, there is no charge of
discrimination in employment practices, for any reason including, without
limitation, age, gender, race, religion or other legally protected category
which is pending or threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Body in any jurisdiction in
which such SMR Company employs any Person.
(b) Schedule 3.12(b)(i) lists each employee benefit plan as
defined in Section 3(3) of ERISA of any SMR Company covering any of its
employees or former employees (an "Employee Benefit Plan"). Schedule 3.12(b)(ii)
lists each employment or severance contract or arrangement, each plan or
arrangement providing for insurance coverage, severance, termination or similar
coverage and all written compensation policies and practices maintained by any
SMR Company covering any of its employees or former employees and that is not an
Employee Benefit Plan (a "Benefit Arrangement").
(c) Each Employee Benefit Plan is in compliance in all
material respects with the applicable requirements of ERISA and the Code.
3.13 Litigation. Except as set forth in Schedule 3.13, there
is no Legal Proceeding pending, or, to the knowledge of such Seller, threatened
in writing against any of the SMR Companies. None of the matters disclosed in
Schedule 3.13(i) has or has had a Material Adverse Effect or (ii) seeks to
enjoin or obtain damages in respect of the consummation of the transactions
contemplated by this Agreement or (iii) questions the validity of this Agreement
or such Seller's Documents or any action taken or to be taken by such Seller in
connection with the consummation of the transactions contemplated hereby or
thereby.
3.14 Compliance with Law. Except as set forth in Schedule
3.14, to the knowledge of such Seller, each of the SMR Companies is conducting
the Business in compliance with all applicable Laws and Orders and currently is
in compliance with all applicable Laws and Orders, except where the failure to
so comply would not have a Material Adverse Effect.
22
3.15 Environmental Matters. (a) There are no pending or, to
such Seller's knowledge, threatened claims, suits or proceedings arising out of
or related to any environmental law or regulation in connection with the
Business or the ownership or use of the assets of any of the SMR Companies,
including, without limitation, statutes and regulations related to air quality,
water quality, solid waste management, hazardous or toxic substances or
protection of health or the environment, including, but not limited to, the
Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq. as
amended), the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq. as
amended), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq. as
amended), the Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") (42 U.S.C. 9601 et seq. as amended), the Clean Air Act (42 U.S.C.
7401 et seq. as amended), the Toxic Substances Control Act (15 U.S.C. 2601 et
seq. as amended), and any similar state or local laws, rules and regulations
(collectively, "Environmental Laws"). To such Seller's knowledge, each SMR
Company is in compliance with Environmental Laws, except for such noncompliance
as would not have a Material Adverse Effect. Each SMR Company has received all
Permits ("Environmental Permits") under Environmental Laws related to the
operation of the Business including all air, water and waste Permits and Permits
for emission and/or disposal of solid, liquid and gaseous materials from
manufacturing operations and is operating in compliance with each such Permit,
except where the failure to have received such Permits or lack of compliance
would not have a Material Adverse Effect.
(b) To the Sellers' knowledge none of the SMR Companies or any
other Person has released solid, liquid or gaseous materials from manufacturing
operations on any of the SMR Properties or, during its ownership and occupancy
of such property, on any property formerly owned, leased, used or occupied by
any SMR Company in violation of applicable Environmental Laws, except for such
violations as would not have a Material Adverse Effect. None of the SMR
Companies is conducting, or has undertaken or completed, any investigation or
remedial action relating to any release or threatened release of solid, liquid
or gaseous materials from manufacturing operations at any of the SMR Properties
or at any other site, location or operation, either voluntarily or pursuant to
the Order of any Governmental Body or the requirements of any Environmental Law
or environmental permit.
23
(c) This Section 3.15 constitutes the sole and exclusive
representations and warranties regarding environmental matters, including, but
not limited to, those matters under Environmental Laws.
3.16 Insurance. Schedule 3.16 sets forth a list of all
material policies of insurance of any kind or nature covering the SMR Companies,
including, without limitation, policies of life, fire, theft, workers
compensation, employee fidelity and other casualty and liability insurance and
the SMR Companies have timely paid all premiums due thereunder. To the Seller's
knowledge, none of these policies is in default. True, correct and complete
copies of each such policy have been delivered or made available to the
Purchaser.
3.17 Brokers. No Person has acted directly or indirectly as a
broker, finder or financial advisor for any of the SMR Companies or such Seller
in connection with the negotiations relating to or the transactions contemplated
by this Agreement and no Person is entitled to any fee, commission or like
payment in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of any of the SMR Companies or such Seller,
except for Schroder & Co. Inc. ("Schroders").
3.18 Securities Act. Such Seller is acquiring the Purchaser
Shares to be issued to him pursuant to Section 1.2 and not with a view to, or
for sale in connection with, any distribution thereof in violation of the
Securities Act. Such Seller acknowledges that the Purchaser Shares have not been
registered under the Securities Act or any applicable state securities Law and
that such Purchaser Shares may not be transferred or sold except pursuant to the
registration provisions of such Securities Act or pursuant to an applicable
exemption therefrom and pursuant to state securities Laws as applicable. Sellers
make no representations or warranties regarding the sales of Purchaser Common
Stock provided for in Section 1.5.
3.19. Inventories. (a) Subject to amounts reserved therefor on
the Initial Balance Sheet, the values at which all Inventories are carried on
the Initial Balance Sheet reflect the historical inventory valuation policy of
the SMR Companies of stating such Inventories at the lower of cost (determined
as set forth in the notes to the Financial Statements) or market value. Except
as set forth in Schedule 3.19, the SMR Companies have good and marketable
24
title to the Inventories free and clear of Liens other than Permitted
Exceptions. Schedule 3.19 is a complete list of the addresses of all warehouses
and other facilities in which the Inventories are located.
(b) Subject to amounts reserved therefore on the Initial
Balance Sheet, adequate provision has been made for Inventory items that are
obsolete, damaged or slow-moving. The Inventories reflected on the Initial
Balance Sheet are in good and merchantable condition in all material respects,
are suitable and usable for the purposes for which they are intended and are in
a condition such that they can be sold in the ordinary course of the Business
consistent with past practice. None of the SMR Companies is under any obligation
or liability with respect to accepting returns of items of Inventory or
merchandise in the possession of their customers other than in the ordinary
course of business consistent with past practice.
3.20. No Undisclosed Liabilities. To each Seller's knowledge,
there are no Liabilities of the SMR Companies, other than Liabilities (i)
reflected or reserved against on the Initial Balance Sheet, (ii) disclosed in
Schedule 3.20 or (iii) incurred since the date of the Initial Balance Sheet in
the ordinary course of the Business, consistent with the past practice, of the
SMR Companies and which do not and would not have a Material Adverse Effect.
Reserves are reflected on the Initial Balance Sheet against all Liabilities of
the SMR Companies in amounts that have been established on a basis consistent
with the past practices of the SMR Companies and in accordance with GAAP.
3.21. Receivables. Schedule 3.21 sets forth an aged list of
the Receivables of the SMR Companies as of the Balance Sheet Date showing
separately those Receivables that as of such date had been outstanding (i) 29
days or less, (ii) 30 to 59 days, (iii) 60 to 89 days, (iv) 90 to 119 days and
(v) more than 119 days. Except to the extent, if any, reserved for on the
Initial Balance Sheet, all Receivables reflected on the Initial Balance Sheet
arose from, and the Receivables existing on the Closing Date will have arisen
from, the sale of Inventory or services to Persons not affiliated with any
Seller or any SMR Company and in the ordinary course of the Business consistent
with past practice and, except as reserved against on the Initial Balance Sheet,
to the Seller's knowledge, constitute or will constitute, as the case may be,
only valid, undisputed
25
claims of the SMR Companies not subject to valid claims of set-off or other
defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of the Business consistent with past practice.
3.22. Customers. Listed in Schedule 3.22 are the names and
addresses of the ten most significant customers (by revenue) of the SMR
Companies for the twelve-month period ended May 31, 1998 and the amount for
which each such customer was invoiced during such period. Except as disclosed in
Schedule 3.22, none of the Sellers nor any SMR Company has received any notice
that any significant customer of any SMR Company has ceased, or will cease, to
use the products, equipment, goods or services of such SMR Company, or has
substantially reduced, or will substantially reduce, the use of such products,
equipment, goods or services at any time.
3.23. Suppliers. Listed in Schedule 3.23 are the names and
addresses of each of the ten most significant suppliers of raw materials,
supplies, merchandise and other goods for the SMR Companies for the twelve-month
period ended May 31, 1998 and the amount for which each such supplier invoiced
the SMR Companies during such period. Except as disclosed in Schedule 3.23, none
of the Sellers nor any SMR Company has received any notice that any such
supplier will not sell raw materials, supplies, merchandise and other goods to
any SMR Company at any time after the Closing Date on terms and conditions
substantially similar to those used in its current sales to such SMR Company,
subject only to general and customary price increases.
3.24. Key Employees. (a) Schedule 3.24 lists the name, place
of employment, the current annual salary rates, bonuses, deferred or contingent
compensation, pension, accrued vacation, "golden parachute" and other like
benefits paid or payable (in cash or otherwise) in 1995, 1996, 1997 and 1998,
the date of employment and a description of position and job function of each
current salaried employee, officer, director, consultant or agent of each SMR
Company (other than any Seller) whose annual compensation exceeded (or, in 1998,
is expected to exceed) $90,000.
(b) All directors, officers, management employees, and
technical and professional employees of each SMR Company are under written
obligation to such SMR Company to maintain in confidence all confidential or
proprietary
26
information acquired by them in the course of their employment and to assign to
such SMR Company all inventions made by them within the scope of their
employment during such employment and for a reasonable period thereafter.
3.25. Corporate Books and Records. The minute books of each
SMR Company contain materially accurate records of all meetings and accurately
reflect in all material respects all other actions taken by the stockholders,
boards of directors and all committees of the boards of directors of such SMR
Company. Complete and accurate copies of all such minute books and of the stock
register of each SMR Company have been provided by the Sellers to the Purchaser.
3.26. Certain Interests. (a) Except as disclosed in Schedule
3.26(a), no officer or director of any SMR Company and no relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer or director:
(i) has any direct or indirect financial interest in any
competitor, supplier or customer of any SMR Company, provided, however,
that the ownership of securities representing no more than one percent
of the outstanding voting power of any competitor, supplier or
customer, and which are listed on any national securities exchange or
traded actively in the national over-the-counter market, shall not be
deemed to be a "financial interest" so long as the Person owning such
securities has no other connection or relationship with such
competitor, supplier or customer;
(ii) owns, directly or indirectly, in whole or in part, or has
any other interest in any tangible or intangible property which any SMR
Company uses or has used in the conduct of the Business or otherwise;
or
(iii) has outstanding any Indebtedness to any SMR
Company
(b) Except as disclosed in Schedule 3.26(b), no officer or
director of any SMR Company and no relative or spouse (or relative of such
spouse) who resides with, or is a dependent of, any such officer or director has
outstanding any Indebtedness to any Seller.
27
(c) Except as disclosed in Schedule 3.26(c), no SMR Company
has any Liability or any other obligation of any nature whatsoever to any
officer, director or shareholder of any SMR Company or to any relative or spouse
(or relative of such spouse) who resides with, or is a dependent of, any such
officer, director or shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to each Seller
that:
4.1 Organization and Good Standing. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
carry on its business as it is now being conducted.
4.2 Authorization of Agreement. The Purchaser has full
corporate power and authority to execute and deliver this Agreement and each
other agreement, document, instrument or certificate contemplated by this
Agreement or to be executed by the Purchaser in connection with the consummation
of the transactions contemplated by this Agreement (all such other agreements,
documents, instruments and certificates required to be executed by the Purchaser
being hereinafter referred to, collectively, as the "Purchaser Documents") and
to perform fully its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of this Agreement and each Purchaser
Document has been duly authorized by the Purchaser's Board of Directors,
constituting all necessary corporate action on the part of the Purchaser. This
Agreement has been, and the Purchaser Documents will be at or prior to the
Closing, duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and the Purchaser Documents when so executed and
delivered will constitute, legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless
28
of whether enforcement is sought in a proceeding at law or in equity).
4.3 No Violations; Consents. None of the execution and
delivery by the Purchaser of this Agreement and the Purchaser Documents, or the
consummation of the transactions contemplated hereby or thereby, or compliance
by the Purchaser with any of the provisions hereof or thereof will (a) conflict
with, or result in the breach of, any provision of the certificate of
incorporation or by-laws of the Purchaser or (b) assuming compliance with the
matters referred to on Schedule 4.3, constitute a violation of any Law
applicable to the Purchaser. Except as set forth on Schedule 4.3, no consent,
waiver, approval, Order, Permit or authorization of, or declaration or filing
with, or notification to, any Governmental Body is required on the part of the
Purchaser in connection with the execution, delivery and performance of this
Agreement or the Purchaser Documents.
4.4 Litigation. There is no Legal Proceeding pending or, to
the knowledge of the Purchaser, threatened, that seeks to enjoin or obtain
damages in respect of the consummation of the transactions contemplated by this
Agreement or that questions the validity of this Agreement, the Purchaser
Documents or any action taken or to be taken by the Purchaser in connection with
the consummation of the transactions contemplated hereby or thereby.
4.5 Brokers. No Person has acted directly or indirectly as a
broker, finder or financial advisor for the Purchaser in connection with the
negotiations relating to or the transactions contemplated by this Agreement and
no Person is entitled to any fee or commission or like payment (other than from
the Purchaser) in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Purchaser.
4.6 Securities Act. The Purchaser is acquiring the Securities
solely for the purpose of investment and not with a view to, or for sale in
connection with, any distribution thereof in violation of the Securities Act.
The Purchaser acknowledges that the Securities have not been registered under
the Securities Act or any applicable state securities Law and that such
Securities may not be transferred or sold except pursuant to the registration
provisions of such Securities Act or pursuant to an
29
applicable exemption therefrom and pursuant to state securities Laws as
applicable.
4.7 Condition of the Business. The Purchaser and its
representatives and agents have had and exercised, prior to the date hereof, the
right to enter upon the SMR Properties and to make all inspections and
investigations of the Business deemed necessary or desirable by the Purchaser.
The Purchaser is not purchasing the Securities based on any representation or
warranty of the Sellers not expressly set forth in this Agreement. In light of
these inspections and investigations, the Purchaser is relinquishing any right
to any claim based on any representations and warranties other than those
specifically included in this Agreement. Any claims the Purchaser may have for
breach of representation or warranty shall be based solely on the
representations and warranties set forth in this Agreement. All representations
and warranties implied or arising under statute or otherwise (other than the
representations and warranties set forth in this Agreement) hereby are waived by
the Purchaser. In particular, the Sellers make no representation or warranty to
the Purchaser with respect to any offering memoranda or financial projection or
forecast relating to the SMR Companies. With respect to any such projection or
forecast delivered by or on behalf of the Sellers to the Purchaser, the
Purchaser acknowledges that (i) there are uncertainties inherent in attempting
to make such projections and forecasts, (ii) it is familiar with such
uncertainties, (iii) it is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all such projections and forecasts so
furnished to it and (iv) it shall have no claim against any of the Sellers with
respect thereto. Nothing contained in this Section 4.7 or any investigation or
inspection by the Purchaser shall in any way limit the ability of the Purchaser
to rely upon the representations and warranties made by the Sellers in this
Agreement, subject to the terms and conditions of this Agreement.
4.8 Representation. Purchaser is not aware that the receipt of
the Purchase Price for the Securities by the Sellers in the manner provided by
this Agreement (assuming the Election is made and consideration is allocated to
a covenant not to compete as provided in Schedule 1.4(b) hereof) should result
in the imposition of a greater amount of Tax liability on the Sellers than the
Tax liability that Sellers would have incurred were they to have received the
amount of such Purchase Price for the Securities in cash at
30
the Closing (assuming the Election is made and consideration is allocated to a
covenant not to compete as provided in Schedule 1.4(b) hereof).
ARTICLE V
COVENANTS OF THE SELLERS
From and after the date hereof and until the Closing, the
Company and each Seller jointly and severally covenants and agrees with the
Purchaser that:
5.1 Cooperation; Consents and Conditions. Such Seller shall
use his reasonable best efforts to take, or cause to be taken, all action to do,
or cause to be done, and to assist and cooperate with the other parties hereto
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) complying
with the HSR Act in all respects (including the filing of a notification and
report form to the extent necessary no later than the business day following the
execution of this Agreement), (b) obtaining all necessary waivers, consents and
approvals from Governmental Bodies and the making of all necessary registrations
and filings (including, but not limited to, filings with Governmental Bodies, if
any) and the taking of all reasonable steps as may be necessary to obtain any
approval or waiver from, or to avoid any action or proceeding by, any
Governmental Body, (c) obtaining all necessary consents, approvals or waivers
from third parties and (d) defending any lawsuits or any other Legal Proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby including, without limitation, seeking to have any temporary restraining
order entered by any court or administrative authority vacated or reversed.
5.2 Access to Documents; Opportunity to Ask Questions. Such
Seller shall provide the Purchaser with such information as the Purchaser from
time to time reasonably may request with respect to the SMR Companies, and shall
permit the Purchaser and any of the directors, officers, employees, counsel,
representatives, accountants and auditors (collectively, the "Purchaser
Representatives") reasonable access, during normal business hours and upon
reasonable prior notice, to the properties, records and
31
books of accounts, management and employees of the SMR Companies, as the
Purchaser from time to time reasonably may request. Until the Closing Date, all
information obtained by the Purchaser, and the manner in which it is obtained,
in connection with the transactions contemplated by this Agreement shall be
subject to the Confidentiality Agreement, dated as of June 5, 1998, between the
Purchaser and Schroders on behalf of the SMR Companies (the "Confidentiality
Agreement").
5.3 Conduct of Business. (a) Each Seller shall cause each of
the SMR Companies to operate and conduct its business in the ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
except as described in Schedule 5.3, each Seller shall cause each SMR Company to
(i) continue its advertising and promotional activities, and pricing and
purchasing policies, in accordance with past practice, (ii) not shorten or
lengthen the customary payment cycles for any of its payables or receivables,
(iii) use commercially reasonable efforts to (A) preserve its present business
operations, organization and goodwill, (B) keep available the services of its
present employees, (C) preserve its present relationships with customers,
suppliers and other Persons having business dealings with it, (D) maintain all
of its assets and properties in their current condition, normal wear and tear
excepted, (E) maintain insurance in such amounts and of such kinds as is
comparable to that in effect on the date hereof (with insurers of substantially
the same or better financial condition), (iv) exercise, but only after notice to
the Purchaser and receipt of the Purchaser's prior written approval, any rights
of renewal pursuant to the terms of any of the leases or subleases set forth in
Schedule 3.5 which by their terms would otherwise expire; and (v) not engage in
any practice, take any action, fail to take any action or enter into any
transaction which would have the intent of causing any representation or
warranty of any Seller to be untrue or result in a breach of any covenant made
by any Seller in this Agreement.
(b) Such Seller shall not permit any of the SMR Companies to,
do, or agree or commit to do, any of the following without the prior written
consent of the Purchaser, which shall not be unreasonably withheld:
(i)(A) increase the rate of compensation payable or to
become payable to any of its employees other than ordinary increases
consistent with past
32
practice, (B) amend in any material respect any bonus, stock option,
stock purchase, profit-sharing, deferred compensation, pension,
retirement or other similar plan or arrangement to or in respect of
any such employee other than as may be required to maintain compliance
with ERISA and/or the Code, or (C) enter into any new, or amend in any
respect any existing, employment, severance or consulting agreement,
sales agency or other Contract with respect to the performance of
personal services for any of the SMR Companies, other than as may be
required to maintain compliance with ERISA and/or the Code, except
that Purchaser agrees that the individuals listed on Schedule 5.3
shall be paid by the SMR Companies the bonuses set forth opposite
their names on such Schedule 5.3 immediately prior to the Closing;
(ii)(A) increase its indebtedness for borrowed money or
capital lease obligations, except in the ordinary course of business
or in connection with the payment of transaction expenses, (B) sell,
assign, transfer, convey, lease or otherwise dispose of any of its
material assets, other than inventory in the ordinary course of
business, (C) cancel or compromise any material debt or claim or waive
or release any material right, except for adjustments or settlements
made in the ordinary course of business consistent with past practice,
(D) make any capital expenditure in excess of $10,000 or series of
capital expenditures of more than $250,000 in the aggregate, (E) agree
to amend, modify or supplement any Real Property Lease, Personal
Property Lease or Material Contract, or (F) acquire any material
assets other than in the ordinary course of business;
(iii) declare, make or set aside funds for any
dividend, distribution or other payment in respect of its outstanding
equity interests, including any redemptions or repurchases thereof;
provided, however, that the Sellers shall be entitled to receive
distributions which, in the aggregate, do not exceed their federal,
state and local tax liability in respect of the taxable income of the
SMR Companies through and including the Closing Date (other than
taxable income directly resulting from the making of the Election),
subject to any adjustments to the Purchase Price required by Section
1.3. The foregoing shall not be deemed to prohibit the distribution of
SMR Associates
33
to each Seller of monthly cash compensation payments in the amount of
$20,000.00, which is consistent with past practice;
(iv) permit or allow any of the assets or properties
(whether tangible or intangible) of any SMR Company to be subjected to
any Lien, other than Permitted Exceptions and Liens that will be
released at or prior to the Closing;
(v) except in the ordinary course of business
consistent with past practice, discharge or otherwise obtain the
release of any Lien or pay or otherwise discharge any Liability, other
than current liabilities reflected on the Initial Balance Sheet and
current liabilities incurred in the ordinary course of business
consistent with past practice since the Balance Sheet Date (for the
avoidance of doubt, nothing in the Section 5.3(b)(v) will in any way
restrict the SMR Companies' ability to repay existing long-term debt);
(vi) make any loan to, guarantee any Indebtedness of or
otherwise incur any Indebtedness on behalf of any Person;
(vii) fail to pay any creditor any amount owed to such
creditor when due, except in respect of good faith disputes;
(viii) make any material changes in the customary
methods of operations of any SMR Company, including, without
limitation, practices and policies relating to manufacturing,
purchasing, Inventories, marketing, selling and pricing;
(ix) merge with, enter into a consolidation with or
acquire an interest of 5% or more in any Person;
(x) issue or sell any capital stock, notes, bonds or
other securities, or any option, warrant or other right to acquire the
same, of, or any other interest in, any SMR Company;
(xi) enter into any agreement, arrangement or
transaction with any of its directors, officers,
34
employees or shareholders (or with any relative, beneficiary, spouse
or Affiliate of any such Person);
(xii) write down or write up (or fail to write down
or write up in accordance with GAAP consistent with past practice) the
value of any Inventories or Receivables or revalue any assets of any
SMR Company other than in the ordinary course of business consistent
with past practice and in accordance with GAAP;
(xiii) make any change in any method of accounting
or accounting practice or policy used by any SMR Company, other than
such changes required by GAAP;
(xiv) allow any Permit that was issued or relates to
any SMR Company or otherwise relates to any Asset to lapse or
terminate or fail to renew any such Permit or any insurance policy
that is scheduled to terminate or expire within 45 calendar days of
the Closing Date;
(xv) amend or restate the Certificate of Incorporation
or the By-laws (or other organizational documents) of any SMR Company;
xvi) terminate, discontinue, close or dispose of any
plant, facility or other business operation, or lay off any employees
(other than layoffs of less than 50 employees in any six-month period
in the ordinary course of business consistent with past practice) or
implement any early retirement, separation or program providing early
retirement window benefits within the meaning of Section 1.401(a)-4 of
the U.S. Treasury Regulations promulgated with respect to the Code or
announce or plan any such action or program for the future;
(xvii) disclose any secret or confidential Intangible
Assets (except by way of issuance of a patent) or permit to lapse or
go abandoned any Intangible Assets (or any registration or grant
thereof or any application relating thereto) to which, or under which,
any SMR Company has any right, title, interest, or license;
35
(xviii) enter into any agreement for the purchase or
sale of goods or services by the Company for an amount in excess of
$350,000 per agreement;
(xix) fail to maintain the Assets in accordance with
past practice;
(xx) agree, whether in writing or otherwise, to take
any of the actions specified in this Section 5.3(b) or grant any
options to purchase, rights of first refusal, rights of first offer or
any other similar rights or commitments with respect to any of the
actions specified in this Section 5.3(b), except as expressly
contemplated by this Agreement.
(xxi) make any material tax election or settle or
compromise any material federal, state, local or foreign income Tax
which could be materially detrimental to the Purchaser.
5.4 Notices of Certain Events. Such Seller shall promptly
notify the Purchaser of:
(a) any notice or other communication (i) alleging that the
consent of any Person is or may be required in connection with the transactions
contemplated by this Agreement, or (ii) from any Person to the effect that such
Person intends not to continue to conduct business with any of the SMR Companies
after the Closing;
(b) any notice or other communication from any Government Body
in connection with the transactions contemplated by this Agreement; and
(c) any Legal Proceeding commenced or, to the best of his
knowledge threatened against, relating to or involving or otherwise affecting
any of the SMR Companies that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 3.13 hereof or
that relate to the consummation of the transactions contemplated by this
Agreement.
36
SECTION 5.5. Confidentiality (Sellers). Each Seller agrees to:
(i) treat and hold as confidential (and not disclose or provide access to any
Person to) all information relating to trade secrets, processes, patent and
trademark applications, product development, price, customer and supplier lists,
pricing and marketing plans, policies and strategies, details of client and
consultant contracts, operations methods, product development techniques,
business acquisition plans, new personnel acquisition plans and all other
confidential information with respect to the Business and each SMR Company, (ii)
in the event that such Seller becomes legally compelled to disclose any such
information, provide the Purchaser with prompt written notice of such
requirement so that the Purchaser or any SMR Company may seek a protective order
or other remedy, (iii) in the event that such protective order or other remedy
is not obtained, furnish only that portion of such confidential information
which is legally required to be provided and exercise reasonable efforts to
obtain assurances that confidential treatment will be accorded such information,
(iv) promptly furnish (prior to, at, or as soon as practicable following, the
Closing) to each SMR Company or the Purchaser any and all copies (in whatever
form or medium) of all such confidential information then in the possession of
such Seller and destroy any and all additional copies then in the possession of
such Seller of such information and of any analyses, compilations, studies or
other documents prepared, in whole or in part, on the basis thereof; provided,
however, that this sentence shall not apply to any information that, at the time
of disclosure, is available publicly and was not disclosed in breach of this
Agreement by such Seller, provided further that, with respect to Intangible
Property, specific information shall not be deemed to be within the foregoing
exception merely because it is embraced in general disclosures in the public
domain. In addition, with respect to Intangible Property, any combination of
features shall not be deemed to be within the foregoing exception merely because
the individual features are in the public domain unless the combination itself
and its principle of operation are in the public domain. Each Seller agrees and
acknowledges that remedies at law for any breach of his obligations under this
Section 5.5 are inadequate and that in addition thereto the Purchaser shall be
entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach.
37
ARTICLE VI
COVENANTS OF THE PURCHASER
From and after the date hereof, and until the Closing Date,
the Purchaser hereby covenants and agrees with the Sellers that:
6.1 Cooperation; Consents and Conditions. The Purchaser shall
use its reasonable best efforts to take, or cause to be taken, all action to do,
or cause to be done, and to assist and cooperate with the other parties hereto
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) complying
with the HSR Act in all respects (including the filing of a notification and
report form to the extent necessary no later than the business day following the
execution of this Agreement), (b) obtaining all necessary waivers, consents and
approvals from Governmental Bodies and the making of all necessary registrations
and filings (including, but not limited to, filings with Governmental Bodies, if
any) and the taking of all reasonable steps as may be necessary to obtain any
approval or waiver from, or to avoid any action or proceeding by, any
Governmental Body, (c) obtaining all necessary consents, approvals or waivers
from third parties and (d) defending any Legal Proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby including,
without limitation, seeking to have any temporary restraining order entered by
any court or administrative authority vacated or reversed.
6.2 Confidentiality (Purchaser). The Purchaser shall comply
with the terms regarding confidentiality set forth in the Confidentiality
Agreement.
6.3 Notices of Certain Events. The Purchaser shall promptly
notify the Sellers of:
(a) any notice or other communication from any Government Body
in connection with the transactions contemplated by this Agreement; and
(b) any Legal Proceedings commenced or, to the best of its
knowledge threatened against, relating to or involving or otherwise affecting
the Purchaser that, if pending on the date of this Agreement, would have been
38
required to have been disclosed pursuant to Section 4.4 hereof or that relate to
the consummation of the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS
7.1 Employment and Employee Benefit Matters.
(a) The Purchaser shall, and shall cause its Subsidiaries
following the Closing Date to:
(i) honor and provide for payment of all
obligations and benefits under all Employee Benefit Plans and Benefit
Arrangements in accordance with their terms;
(ii) provide employee benefits which are
substantially comparable in the aggregate to the level of employee benefits
provided by the SMR Companies under the Employee Benefit Plans and Benefit
Arrangements in effect as of the date hereof for the benefit of employees or
former employees who are or had been employees of any of the SMR Companies on or
before the Closing Date ("Covered Employees") until February 28, 1999;
(iii) maintain in effect until February 28, 1999 for
the benefit of the Covered Employees the severance plans and practices of the
SMR Companies in effect as of the date hereof;
(iv) provide until February 28, 1999 for the benefit
of Covered Employees who remain in the employ of the Purchaser or any of its
affiliates employee compensation that is no less than the compensation
(including base pay and incentive compensation) provided by the SMR Companies
under the compensation arrangements in effect as of the date hereof; and
(v) provide healthcare benefits to the former owners
of FSI in accordance with the terms set forth on Schedule 7.1(a).
(b) If Covered Employees are included in any benefit plan
(including, without limitation, provision for vacation) of the Purchaser or its
Subsidiaries, the Purchaser agrees that the Covered Employees shall receive
39
credit as employees of the SMR Companies for service prior to the Closing Date
with the SMR Companies to the same extent such service was counted under similar
Employee Benefit Plans for purposes of eligibility, vesting, eligibility for
retirement and, with respect to vacation, disability and severance, benefit
accrual. If Covered Employees are included in any medical, dental or health plan
other than the plan or plans they participated in on the Closing Date, the
Purchaser agrees that any such plans shall not include pre-existing condition
exclusions, except to the extent such exclusions were applicable under the
similar Employee Benefit Plan or Benefit Arrangement on the date hereof, and
shall provide credit for any deductibles and co-payments applied or made with
respect to each Covered Employee in the calendar year of the change.
(c) The parties acknowledge that nothing herein shall be
deemed to be a commitment on the part of the Purchaser to provide employment to
any person for any period of time and, except as otherwise provided in this
Section 7.1, nothing herein shall be deemed to prevent the Purchaser from
amending or terminating any Employee Benefit Plan or Benefit Arrangement in
accordance with its terms.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the purchase of
the Securities on the Closing Date is subject to the satisfaction of each of
the following conditions:
8.1 Representations, Warranties and Covenants. (a) Each of the
representations and warranties of the Sellers contained herein and in each of
the Seller's Documents shall be true and correct in all material respects when
made and shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though the same had been made on
and as of the Closing Date, it being understood that to the extent that such
representations and warranties were made as of a specified date the same shall
continue on the Closing Date to be true and correct in all material respects as
of the specified date (provided, however, that if any portion of any
representation or warranty is already qualified by materiality, for purposes of
determining whether this Section 8.1(a) has been satisfied with respect to such
40
portion of such representation or warranty, such portion of such representation
or warranty as so qualified must be true and correct in all respects).
(b) Each Seller shall have performed and complied in all
material respects with the covenants and provisions of this Agreement and in
each of the Seller's Documents required to be performed or complied with by them
at or prior to the Closing Date.
8.2 Deliveries by the Sellers to the Purchaser. At the
Closing, each Seller shall deliver, or shall cause to be delivered, to the
Purchaser the following:
(a) the certificates representing the Shares owned by such
Seller, duly endorsed or accompanied by duly executed stock powers to the
Purchaser, together with such additional documents and instruments reasonably
requested by the Purchaser in connection with the sale, transfer, assignment and
conveyance of such Shares by such Seller to the Purchaser;
(b) appropriate instruments of sale, transfer, assignment and
conveyance with respect to the Partnership Interests and the LLC Interests owned
by such Seller, in form and substance reasonably acceptable to the Purchaser,
together with such additional documents and instruments reasonably requested by
the Purchaser in connection with the sale, transfer, assignment and conveyance
of such Partnership Interests and LLC Interests by such Seller to the Purchaser;
(c) a certificate dated as of the Closing Date, certifying as
to the fulfillment of the conditions set forth in Section 8.1 hereof;
(d) an affidavit, in a form reasonably satisfactory to the
Purchaser, of such Seller stating under penalties of perjury such Seller's
United States taxpayer identification number and that such Seller is not a
foreign person within the meaning of Section 1445(b)(2) of the Code;
(e) a good standing certificate for each of the SMR Companies
(to the extent applicable) from the Secretary of State of the State of its
incorporation or formation dated the Closing Date;
41
(f) a Registration and Transfer Agreement, dated the Closing
Date, substantially in the form attached hereto as Exhibit A (the "Registration
Rights Agreement") executed by such Seller;
(g) the Escrow Agreement, dated the Closing Date, executed by
such Seller, together with any counterparts signed by the Escrow Agent and blank
stock powers executed by such Seller with respect to the Purchaser Common Stock
and Purchaser Preferred Stock to be held in escrow;
(h) a Standstill and Noncompete Agreement, dated the Closing
Date, executed by such Seller, substantially in the form attached hereto as
Exhibit D;
(i) a Share Disposition Agreement, dated the Closing Date,
substantially in the form attached hereto as Exhibit E (the "Share Disposition
Agreement"), executed by such Seller; and
(j) resignations, dated the Closing Date, signed by the
Sellers relating to their positions as directors, officers and managers of the
SMR Companies.
8.3 ESOP Shares. On or before the Closing Date, the ESOP
Shares shall have been purchased by the Purchaser pursuant to the ESOP Purchase
Agreement.
8.4 No Prohibition. No Law or Order of any court or
administrative agency shall be in effect which prohibits the Purchaser or any
Seller from consummating the transactions contemplated hereby.
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligation of each Seller to consummate the sale, transfer
and assignment to the Purchaser of the Securities owned by such Seller on the
Closing Date is subject to the satisfaction of each of the following
conditions:
9.1 Representations, Warranties and Covenants. (a) Each of the
representations and warranties of the Purchaser contained herein and in the
Purchaser Documents
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shall be true and correct in all material respects when made and shall be true
and correct in all material respects as of the Closing Date with the same force
and effect as though the same had been made on and as of the Closing Date, it
being understood that to the extent that such representations and warranties
were made as of a specified date the same shall continue on the Closing Date to
be true and correct in all material respects as of the specified date (provided,
however, that if any portion of any representation or warranty is already
qualified by materiality, for purposes of determining whether this Section
8.1(a) has been satisfied with respect to such portion of such representation or
warranty, such portion of such representation or warranty as so qualified must
be true and correct in all respects).
(b) The Purchaser shall have performed and complied in all
material respects with the covenants and provisions in this Agreement and in the
Purchaser Documents required herein to be performed or complied with by it at or
prior to the Closing Date.
9.2 Deliveries by the Purchaser to the Sellers. At the
Closing, the Purchaser shall deliver to each Seller the following:
(a) a certificate or certificates representing the Purchaser
Common Stock and Purchaser Preferred Stock to be delivered to such Seller
pursuant to Section 1.2 hereof, registered in the name of such Seller;
(b) the Cash Payment, if any, to be made to such Seller
pursuant to Section 1.2 hereof;
(c) a certificate of the Purchaser, dated as of the Closing
Date and signed by an executive officer of the Purchaser, certifying as to the
fulfillment of the conditions set forth in Section 9.1 hereof;
(d) the Registration Rights Agreement, executed by the
Purchaser;
(e) the executed Letter of Credit;
(f) the Escrow Agreement, dated the Closing Date, duly
executed by the Purchaser;
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(g) the Share Disposition Agreement, duly executed by the
Purchaser; and
(h) a certificate of the Purchaser, dated the Closing Date and
signed by an executive officer of Purchaser, certifying that the deliveries
required to be made by the Purchaser to the Escrow Agent have been made.
9.3 No Prohibition. No Law or Order of any court or
administrative agency shall be in effect which prohibits the Purchaser or any
Seller from consummating the transactions contemplated hereby.
ARTICLE X
ADDITIONAL POST-CLOSING COVENANTS
10.1 Further Assurances. From time to time after the Closing
Date, each of the Sellers shall, at the Purchaser's sole cost and expense, at
the reasonable request of the Purchaser, execute and deliver such other and
further instruments of sale, assignment, transfer and conveyance and take such
other and further action as the Purchaser may reasonably request in order to
vest in the Purchaser and put the Purchaser in possession of the Securities.
10.2 Public Announcements. None of the Sellers, the Purchaser
or their respective affiliates shall make any public statement or disclosure
with respect to this Agreement and the transactions contemplated hereby to any
third party, including, without limitation, any Governmental Body, customers,
employees, shareholders and the financial community without the consent of the
other party hereto, except as may be required by Law or applicable NASD rule.
10.3 Books and Records; Personnel. For a period of six years
after the Closing Date (or such longer period as may be required by any
Governmental Body or ongoing Legal Proceeding):
(a) Neither any SMR Company nor the Purchaser shall dispose of
or destroy any of the business records and files of the SMR Companies. If any
SMR Company or the Purchaser wishes to dispose of or destroy such records and
files after that time, it shall first give 30 days' prior written notice to the
Sellers and each of the Sellers shall have the right, at his option and expense,
upon prior
44
written notice to the Purchaser within such 30-day period, to take possession of
the records and files within 60 days after the date of the SMR Company's or the
Purchaser's notice to the Sellers.
(b) The SMR Companies and the Purchaser shall allow each of
the Sellers and his representatives access to all business records and files of
the SMR Companies for the period prior to the Closing Date, during regular
business hours and upon reasonable notice at the Company's principal place of
business or at any location where such records are stored, and each of the
Sellers shall have the right, at his own expense, to make copies of any such
records and files; provided, however, that any such access or copying shall be
had or done in such a manner so as not to interfere in any material respect with
the normal conduct of business operations.
(c) The Company shall make available to each of the Sellers,
upon written request and at such Seller's expense, the Company's personnel to
assist such Seller in locating and obtaining the above-referenced records and
files maintained by SMR Companies.
10.4 Transitional Assistance. For a period commencing on the
Closing Date and ending six months thereafter, each Seller shall be available at
the reasonable request of Purchaser to respond to inquiries and otherwise assist
the Purchaser with respect to transitional matters. No Seller shall be obligated
to spend more than 100 hours of his time regarding such matters without
compensation. The Purchaser shall promptly reimburse all out-of-pocket expenses
incurred by each Seller with respect to the matters set forth in this Section
10.4.
ARTICLE XI
INDEMNIFICATION AND RELATED MATTERS
11.1 Survival of Representations, Warranties. Except for the
representations and warranties set forth in (i) Sections 3.3(f) and 3.11 which
shall survive until the applicable statute of limitations has expired plus, with
respect to Section 3.11 only, 60 days thereafter and (ii) Section 3.15, which
shall survive until the second anniversary of the Closing Date, the
representations and warranties of the parties contained in this Agreement shall
survive until December 31, 1999. Any covenant or other
45
agreement herein shall survive the Closing hereunder indefinitely or for such
lesser period of time as may be specified therein. Any matter as to which a
claim has been asserted by formal notice pursuant to Section 11.4 and within the
time limitation set forth in this Section 11.1 that is pending or unresolved at
the end of such limitation period shall continue to be covered by this Article
XI notwithstanding the expiration date set forth in this Section 11.1, until
such matter is finally terminated or otherwise resolved by the parties under
this Agreement or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid.
11.2 Obligations of the Sellers. From and after the Closing,
each Seller, jointly and severally, agrees to indemnify, defend and hold
harmless the Purchaser, its affiliates (including after the Closing, each SMR
Company), and their successors and assigns, and the officers, directors,
employees and agents of the Purchaser, its affiliates and their successors and
assigns (each a "Purchaser Indemnified Party") from and against any and all
Losses which any Purchaser Indemnified Party may suffer, incur or sustain
arising out of, attributable to, or resulting from: (a) any breach or
nonperformance of any of the covenants or other agreements made by such Seller
in Article V of this Agreement and (b) any inaccuracy in or breach of any of the
representations or warranties of such Seller contained in Article III of this
Agreement; (c) (i) any solid, liquid or gaseous materials from manufacturing
operations which on or prior to the Closing Date were present at, on or under,
or migrated or transported to or from the SMR Properties (or any property
formerly owned or used by any SMR Company or the Business) in violation of
Environmental Law, (ii) any noncompliance with or violation of any applicable
Environmental Law or Environmental Permit occurring on or prior to the Closing
Date, and (iii) the environmental matters set forth on Schedule 11.2(c) hereof
(provided that the Purchaser Indemnified Parties first exhaust all available
remedies against the former owner identified on such Schedule 11.2(c) before
proceeding against Sellers in respect of Section 11.2(c)(i), (ii) or (iii));
provided, however, that no such indemnification shall be required under this
clause(c) unless (i) a written notice or claim shall have been received by a
Purchaser Indemnified Party from a Governmental Body or third party and not
resulting from any actions taken by the Purchaser Indemnified Parties other than
Phase II and other environmental testing as advised by the Purchaser's
46
environmental consultants and any reporting obligations to any Governmental Body
resulting therefrom and the Seller shall have received notice of such written
notice or claim on or prior to the second anniversary of the Closing Date, and
provided, further, that the Sellers shall have the right, but not the obligation
to control and manage any required remedial action and shall only be responsible
to the extent necessary to meet the least stringent, most cost effective
standard required by applicable Environmental Laws and consistent with the SMR
Properties' use at the time of Closing, (d) any claim brought against the
Purchaser or any other Purchaser Indemnified Party in connection with the ESOP
Purchase Agreement alleging that the consideration paid to the FSI ESOP (or the
beneficiaries thereof) was unfair or inadequate or that the FSI ESOP was
otherwise damaged in connection with the ESOP Purchase Agreement (provided that
no indemnification shall be provided in connection with any claim that the
Purchaser has breached the ESOP Purchase Agreement), and (e) any Taxes imposed
on any of the SMR Companies with respect to taxable periods ending on or before
the Closing Date or, with respect to any taxable period beginning before and
ending after the Closing Date, the portion of such period ending on the Closing
Date (determined in accordance with Section 13.2(a)(ii)), in each case other
than (i) by reason of the Election (subject to Section 13.1(c)(ii) and the last
sentence of Section 13.1(g)) or (ii) by reason of any action (other than the
Election) taken by any SMR Company after the Closing or by or at the direction
of the Purchaser (including without limitation the filing of an amended Tax
Return for an SMR Company for a period (or portion thereof) ending on or prior
to the Closing Date without the consent of the Sellers).
11.3 Obligations of Purchaser. From and after the Closing,
Purchaser agrees to indemnify, defend and hold harmless each Seller from and
against any and all Losses which any of them may suffer, incur, or sustain
arising out of, attributable to, or resulting from: (a) any breach or
nonperformance of any of the covenants or other agreements made by Purchaser in
Article VI of this Agreement; (b) any inaccuracy in or breach of any of the
representations and warranties of Purchaser contained in Article IV of this
Agreement; (c) any obligations of any of the SMR Companies to the FSI ESOP
arising prior to the Closing Date (including for the Department of Labor
settlement described on Schedule 11.3 hereof provided that the accruals for such
settlement are reflected on the Closing Balance Sheet), other than for the
matters described in Section 11.2(d); (d) any claims by any employees or former
employees of the SMR Companies, including, without limitation, relating to their
employment with the SMR Companies, termination of
47
employment or change in benefits or compensation, except for matters which would
constitute a breach of the representations and warranties made by Seller in
Section 3.12; or (e) any actions taken as a director, officer, partner or
manager of any of the SMR Companies prior to the Closing Date to the maximum
extent permitted for directors, officers, partners or managers under applicable
state corporate, partnership and limited liability company laws, except for
matters for which Purchaser is entitled to indemnification under Section 11.2;
or (f) any Taxes imposed on any of the Sellers or SMR Companies with respect to
taxable periods ending on or before the Closing Date or, with respect to any
taxable period beginning before and ending after the Closing Date, the portion
of such period ending on the Closing Date (determined in accordance with Section
13.2(a)(ii)) by reason of (i) the Election (subject to Section 13.1(c)(iii) and
the last sentence of Section 13.1(g)) or (ii) any action taken by any SMR
Company (other than the Election) after the Closing or by or at the direction of
the Purchaser (including without limitation the filing of an amended Tax Return
for an SMR Company in respect of a period (or portion thereof) ending on or
prior to the Closing Date without the consent of the Sellers).
11.4 Procedure. (a) Notice of Third Party Claims. Any party
entitled to and seeking indemnification pursuant to this Article XI for any Loss
or potential Loss (an "Indemnified Party") arising from a claim asserted by a
third party against the Indemnified Party (a "Third Party Claim") shall give
written notice to the party required to indemnify the Indemnified Party pursuant
to this Article XI (the "Indemnifying Party") specifying in detail the source of
the Loss or potential Loss under Section 11.2 or 11.3, as the case may be.
Written notice to the Indemnifying Party of the existence of a Third Party Claim
shall be given by the Indemnified Party promptly after notice of the potential
claim; provided, however, that the Indemnified Party shall not be foreclosed
from seeking indemnification pursuant to this Article XI by any failure to
provide such prompt notice of the existence of a Third Party Claim to the
Indemnifying Party unless the Indemnifying Party has been damaged or prejudiced
as a result of such delay. In the case of a Tax Claim, the procedures set forth
in Section 13.2 shall apply in lieu of the procedures set forth in this Section
11.4.
(b) Defense. Except as otherwise provided herein, the
Indemnifying Party may elect to pay, compromise
48
or defend (with the expenses incurred by the Indemnifying Party in connection
therewith for its own account) by such Indemnifying Party's own counsel (which
counsel shall be reasonably satisfactory to the Indemnified Party), any Third
Party Claim. If the Indemnifying Party elects to compromise or defend such Third
Party Claim, it shall, within 30 days after receiving notice of the Third Party
Claim, notify the Indemnified Party of its intent to do so, and the Indemnified
Party shall cooperate, with the expense of the Indemnified Party being part of
the Loss for which the Indemnified Party is entitled to indemnification pursuant
to the terms of this Agreement, in the compromise of, or defense against, such
Third Party Claim. If the Indemnifying Party elects not to compromise or defend
against the Third Party Claim, or fails to notify the Indemnified Party of its
election to do so as herein provided, or otherwise abandons the defense of such
Third Party Claim, (i) the Indemnified Party may pay (without prejudice of any
of its rights as against the Indemnifying Party), compromise or defend such
Third Party Claim (until such defense is assumed by the Indemnifying Party) and
(ii) the costs and expenses of the Indemnified Party incurred in connection
therewith shall be indemnifiable by the Indemnifying Party pursuant to the terms
of this Agreement. However, if within 30 days of receiving a notification from
the Indemnifying Party that the Indemnifying Party does not elect to defend a
Third Party Claim, the Indemnified Party fails to notify the Indemnifying Party
that the Indemnified Party is electing to pay, compromise or defend the claim or
notifies the Indemnifying Party that it does not elect to pay, compromise or
defend the claim, then the Indemnifying Party may elect to pay, compromise or
defend the claim by such Indemnifying Party's own counsel (which counsel shall
be reasonably satisfactory to the Indemnified Party), with the expenses incurred
by the Indemnifying Party for the account of the Indemnified Party but part of
the Loss for which the Indemnified Party is entitled to indemnification pursuant
to the term by this Agreement. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnified Party may settle or compromise any claim
over the objection of the other; provided, however, that (i) consent to
settlement or compromise shall not be unreasonably withheld by the Indemnified
Party and (ii) if the sole settlement relief payable to a third party in respect
of such Third Party Claim is monetary damages that are paid in full by the
Indemnifying Party, the Indemnifying Party may settle such
49
claim without the consent of the Indemnified Party. In any event, except as
otherwise provided herein, the Indemnified Party and the Indemnifying Party may
each participate, at its own expense, in the defense of such Third Party Claim.
If the Indemnifying Party chooses to defend any claim, the Indemnified Party
shall make available to the Indemnifying Party any personnel or any books,
records or other documents within its control that are reasonably necessary or
appropriate for such defense, subject to the receipt of appropriate
confidentiality agreements.
11.5 Miscellaneous. The procedures set forth in Section 11.4
above shall apply solely with respect to Third Party Claims and shall not be
deemed to apply to, or otherwise affect or limit, an Indemnified Party's rights
under this Agreement with respect to any claim other than a Third Party Claim.
11.6 Notice of Non-Third Party Claims. Any Indemnified Party
seeking indemnification for any Loss or potential Loss arising from a claim
asserted by any party to this Agreement against the Indemnifying Party (a
"Non-Third Party Claim") shall give written notice to the Indemnifying Party
specifying in detail the source of the Loss or potential Loss under Section 11.2
or 11.3, as the case may be. Written notice to the Indemnifying Party of the
existence of a Non-Third Party Claim shall be given by the Indemnified Party
promptly after the Indemnified Party becomes aware of the potential claim;
provided that the failure to provide such notice shall not affect the other
party's indemnification or other obligations hereunder, except to the extent
that such party has been prejudiced by such lack of notice.
11.7 Certain Limitations. The Purchaser shall not have any
right to seek indemnification under this Agreement against any Seller in respect
of any claim of less than $5,000 on an individual basis, or in respect of
allowable claims until Losses of such party exceed $500,000 in the aggregate
(the "Indemnification Threshold"), after which time only the aggregate amount of
such Losses in excess of the Indemnification Threshold shall be recoverable in
accordance with the terms hereof; provided, however, that notwithstanding such
limitation but subject to the limitations of Section 11.8 hereof, the Purchaser
shall have the right to seek indemnification under Section 11.2(d) for all
Losses in respect of the subject matter thereof in excess of $250,000. Losses
shall be first recoverable from
50
the property held by the escrow agents pursuant to the Escrow Agreement and the
escrow agreement executed by the ESOP pursuant to the ESOP Purchase Agreement
(the "ESOP Escrow Agreement"). In respect of matters for which indemnification
is provided both by the Sellers under this Agreement and the ESOP under the ESOP
Purchase Agreement, the Purchaser simultaneously shall seek recovery against the
Sellers and the ESOP with 84.5% claimed under this Agreement and 15.5% claimed
under the ESOP Purchase Agreement. Thereafter, each Seller shall be jointly and
severally liable for the Losses not satisfied pursuant to the preceding
sentence.
11.8 Maximum Indemnification. No party shall have any right to
obtain an indemnification payment under this Agreement to the extent amounts
received by such party and its Affiliates and the successors and assigns of such
party and its Affiliates as indemnification payments hereunder and from the
Escrow Agreement equal or exceed 15% of the Purchase Price.
11.9 Subrogation. The rights of any Indemnifying Party shall
be subrogated to any right of action which the Indemnified Party may have
against any other person with respect to any matter giving rise to a claim for
indemnification hereunder.
11.10 Adjustments to Indemnification Obligations. The amount
of any Loss for which indemnification is provided under Sections 11.2 or 11.3
(the "Specified Sections") shall be net of (i) any accruals or reserves created
specifically in respect thereof on the Closing Balance Sheet, (ii) any amounts
recovered by the Indemnified Party pursuant to any indemnification by or
indemnification agreement with any third party, and (iii) any insurance proceeds
or other cash receipts or sources of reimbursement received from a third party
as an offset against such Loss (each such person named above, a "Collateral
Source"), and (iv) an amount equal to the amount of the Tax benefit, if any,
actually realized by the Indemnified Party or any affiliate thereof. To the
extent that an Indemnified Party or an affiliate thereof actually realizes Tax
benefits subsequent to the date of computation and payment of an indemnification
payment due hereunder to such Indemnified Party, the Indemnified Party shall pay
to the Indemnifying Party the amount of such Tax Benefits as and when they are
actually realized by the Indemnified Party or such affiliate. To the extent that
a taxing authority shall require the amount of any
51
indemnification payment to be included in income hereunder, such amount shall be
taken into account in determining the Tax benefit derived by the Indemnified
Party or an affiliate thereof; provided, however, that the Seller shall not be
required to make any indemnification payment to a Purchaser Indemnified Party in
respect of a Loss which shall exceed the amount of such Loss, as computed in
accordance with this Agreement but prior to reduction thereof by Section
11.10(iv). The Indemnified Party shall provide to the Indemnifying Party a
schedule setting forth in reasonable detail the computation of the amount of Tax
benefits actually realized which is attributable to a Loss (whether such Tax
benefits are actually realized prior or subsequent to the date of the
indemnification payment to the Indemnified Party hereunder) and the reason, if
any, why such Loss does not produce a current Tax benefit and the basis, if any,
for the taxation of an indemnification payment received hereunder. In the event
that the Indemnifying Party objects to the computation of Tax benefits actually
realized by the Indemnified Party or an affiliate thereof, the parties shall
seek to resolve such disagreement in good faith; if the parties are unable to
resolve such disagreement, the parties shall submit the matter to the Accounting
Referee, whose determination shall be final and binding and whose fees shall be
borne 50% by the Indemnifying Party and 50% by the Indemnified Party. The
Indemnifying Party may require an Indemnified Party to assign the rights to seek
recovery pursuant to the first sentence of this Section 11.10; provided, that
the Indemnifying Party will then be responsible for pursuing such claim at its
own expense. If the amount to be netted hereunder from any payment required
under Sections 11.2 or 11.3 is determined after payment by the Indemnifying
Party of any amount otherwise required to be paid to an Indemnified Party to
this Article XI, the Indemnified Party shall repay to the Indemnifying Party,
promptly after such determination, any amount that the Indemnifying Party would
not have had to pay pursuant to this Article XI had such determination been made
at the time of such payment.
11.11 Treatment of Indemnification Payments. Any payment made
pursuant to the indemnification obligations arising under this Agreement shall
be treated as an adjustment to the Purchase Price.
11.12 Exclusive Remedy. To the extent not prohibited by Law
and except as provided by Article XIII hereof and except for the granting of
injunctive relief or other similar equitable remedies, this Article XI shall
provide the sole and exclusive
52
remedy for any and all Losses resulting from any breach of representation and
warranty or covenant or resulting from any other provision of this Agreement,
including those asserted by any party hereto, Governmental Body, third party, or
former or present employee and, to this effect, the Purchaser on behalf of
itself and the Purchaser Indemnified Parties hereby waives any claims, rights,
demands or causes of action that the Purchaser Indemnified Parties have or may
have under Environmental Laws against the Sellers other than those specifically
provided for in Section 11.2 of this Agreement.
11.13 No Consequential Damages. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED HEREIN, NO PARTY TO THIS AGREEMENT SHALL BE LIABLE TO OR
OTHERWISE RESPONSIBLE TO ANY OTHER PARTY HERETO OR ANY AFFILIATE OF ANY OTHER
PARTY HERETO FOR CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OR FOR DIMINUTION
IN VALUE OR LOST PROFITS THAT ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE
PERFORMANCE OR BREACH THEREOF.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated:
(a) by the written agreement of the Purchaser and each of the
Sellers;
(b) by the Purchaser or the Sellers if there shall be in
effect a non-appealable order of a court of competent jurisdiction permanently
prohibiting the consummation of the transactions contemplated hereby; and
(c) by the Sellers or the Purchaser if the Closing shall not
have occurred on or before October 31, 1998.
Notwithstanding anything else contained in this Agreement, the
right to terminate this Agreement under this Section 12.1 shall not be available
to any party (i) that is in material breach of its obligations hereunder or (ii)
whose failure to fulfill its obligations or to comply with its covenants under
this Agreement in all material respects has been the cause of, or resulted in,
the failure
53
to satisfy any condition to the obligations of either party hereunder.
12.2 Liabilities After Termination. Upon any termination of
this Agreement pursuant to Section 12.1 hereof, no party hereto shall thereafter
have any further liability or obligation hereunder other than the Purchaser's
obligations pursuant to Section 6.2 hereof, but no such termination shall
relieve any party hereto of any liability to the other parties hereto for any
breach of this Agreement prior to the date of such termination.
ARTICLE XIII
TAX MATTERS
13.1 Section 338(h)(10) Election; Tax Indemnity.
(a) The Purchaser may elect, at the Purchaser's sole option,
to file an election under Section 338(h)(10) of the Code and under any
comparable provisions of state or local law with respect to the purchase of the
Shares (the "Election"). The Sellers shall join, at the request of the
Purchaser, in the Election. If the Election is made, the Purchase Price shall be
increased by the Election Tax Cost (as determined in accordance with Section
13.1(c) hereof) and the Sellers and the Purchaser shall report, in connection
with the determination of income, franchise or other Taxes measured by net
income, the transactions being undertaken pursuant to this Agreement in a manner
consistent with the Election and with the computation of the Election Tax Cost.
(b) The Purchaser shall notify the Sellers in writing of its
intention to file the Election no later than the earlier of (i) one hundred
twenty (120) days after the Closing Date or (ii) fifteen (15) days after Final
Net Worth and Final Debt and Related Costs are determined (the "Election
Notice").
(c) The term "Election Tax Cost" shall mean an amount which,
net of all federal, state and local Taxes imposed on the Sellers in respect of
the receipt thereof by the Sellers, would be equal in amount to the excess of
(A) the aggregate federal, state and local Tax liability incurred by the Sellers
as a consequence of the transactions contemplated hereby (giving effect to the
Election and the
54
allocation of the Purchase Price in accordance with Section 1.4 hereof), over
(B) the aggregate federal, state and local Tax liability that would have been
incurred by the Sellers on the sale of the Securities if the Election had not
been made (and assuming that no portion of the Purchase Price were allocable to
a covenant not to compete); provided, however, that (i) the Election Tax Cost
shall not exceed 200% of the estimate of the Election Tax Cost shown on Schedule
13.1(c) attached hereto, (ii) the amount excluded from the Sellers'
indemnification obligation under Section 11.2(e)(i), when aggregated with the
Election Tax Cost, shall not exceed 200% of the estimate of this Election Tax
Cost shown on Schedule 13.1(c) hereto, and (iii) the amount of Purchaser's
indemnification obligation under Section 11.3(f)(i), when aggregated with the
Election Tax Cost, shall not exceed 200% of the estimate of the Election Tax
Cost shown on Schedule 13.1(c) hereto.
(d) Within 25 days after Sellers' receipt of the Election
Notice, the Sellers shall provide to the Purchaser the computation of the
Election Tax Cost computed as of the Closing Date (which computation shall set
forth only such Tax information as relates to the transactions contemplated
hereby). Unless the Purchaser objects in writing to the Sellers' computation of
the Election Tax Cost, within 20 days after receipt thereof (specifying the
reasons therefor in reasonable detail), such computations shall be deemed final.
If the Purchaser does so object, the Purchaser shall pay to the Sellers (in
accordance with the principles set forth in subparagraph (e) below) the portion
of the Election Tax Cost that the Purchaser does not dispute ("Undisputed
Amount") at least three days prior to the due date of the Sellers' federal
income Tax Return for the Tax period that includes the Closing Date and the
Purchaser and the Sellers will negotiate in good faith to resolve all disputed
items. If the Purchaser and the Sellers are unable to resolve all disputed items
within ten days of Sellers' receipt of Purchaser's written objection, such
disputed items will be submitted to the Accounting Referee for resolution. The
Purchaser and the Sellers will cooperate with the Accounting Referee to resolve
the remaining disputed items within sixty business days after such disputed
items are submitted to the Accounting Referee. The determination of the
Accounting Referee will be deemed final. In the event it is determined that the
Purchaser owes the Sellers any portion of the disputed amount, the Purchaser
shall bear the portion of the costs of the Accounting Referee determined by
multiplying such costs by a
55
fraction, the numerator of which is the additional amount that such Accounting
Referee determines that the Purchaser owes the Sellers and the denominator of
which is the disputed amount, and the Purchaser shall pay to the Sellers such
additional amount plus interest thereon at the "overpayment rate", as defined in
Section 6621(a) of the Code, from the due date of the Sellers' federal income
Tax Return to the date of payment. The Sellers shall bear all costs of the
Accounting Referee that are not paid by the Purchaser pursuant to the preceding
sentence.
(e) Upon final determination of the Election Tax Cost, the
Purchaser shall pay to each Seller an amount equal to the product of (i) the
excess of the Election Tax Cost over the amount thereof previously paid to the
Sellers pursuant to Section 13.1(d) and (ii) the percentage set forth opposite
the name of such Seller on Schedule 1.1 hereto.
(f) The Purchaser shall be responsible for the preparation and
filing of all forms and documents required in connection with the Election. In
connection with the Election Notice, the Purchaser shall provide the Sellers
with copies of (i) Form 8023 as reasonably agreed to by the parties, (ii) all
attachments required to be filed therewith pursuant to applicable Treasury
Regulations, and (iii) any comparable forms and attachments with respect to any
applicable state or local elections being made pursuant to the Election. The
Sellers shall execute and deliver to the Purchaser within 60 days of receipt of
the Election Notice such documents or forms as are required by any Tax laws to
complete properly the Election and to jointly file such Election on a timely
basis; provided, however, that Sellers shall not be required to deliver such
documents or forms or file such Election prior to payment of the Election Tax
Cost in the manner provided by Section 13.1(e) hereof; provided, further,
however, that if a good faith dispute concerning the amount of the Election Tax
Cost is pending, and the Purchaser shall have deposited with an escrow agent
acceptable to the Sellers, pursuant to an escrow agreement acceptable to the
Sellers, the disputed portion of the Election Tax Cost, the Sellers shall
deliver such forms and file such Election. The Sellers and the Purchaser shall
cooperate fully with each other and make available to each other such Tax data
and other information as may be reasonably required by the Sellers or the
Purchaser in order to timely file the Election and any other required statements
or schedules and to compute the amount of the
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Election Tax Cost. The Sellers shall promptly execute and deliver to the
Purchaser any amendments subsequent to the filing of the Election to Form 8023
(and any comparable state and local forms) and attachments which are required to
be filed under applicable law and are reasonably agreed to by the parties.
(g) Purchaser shall indemnify the Sellers, on an after-tax
basis, against any federal, state or local Tax liability which is incurred by
the Sellers by reason of consummating the transactions contemplated hereby
(including by reason of the Election or the allocation of any portion of the
Purchase Price to a covenant not to compete, but not by reason of an adjustment
required by a taxing authority to the amount of the Purchase Price allocable to
a covenant not to compete), to the extent that the amount of such Tax liability
exceeds the Tax liability that the Sellers would have incurred were they to have
(a) sold the Shares, the Partnership Interests and the LLC Interests without the
making of the Election or the allocation of any consideration to a covenant not
to compete and (b) received as consideration therefor at the Closing Date an
amount of cash equal to the Purchase Price (as adjusted in accordance with
Section 1.3 and increased for interest in accordance with Section 1.2 hereof).
Notwithstanding anything to the contrary set forth herein, the Purchaser shall
not be required to indemnify the Sellers for the increase in the Election Tax
Cost (if any), or any increase in the Tax liability incurred by an SMR Company
by reason of the Election, that results from the breach of a representation set
forth in Section 3.11.
13.2 Tax Returns; Audits. (a) (i) The Sellers shall be
responsible for preparing or causing to be prepared, at the appropriate SMR
Company's expense, the Company's federal income tax return on Form 1120S and
comparable state and local income and franchise tax returns (each, an "S Period
Return"), for the Company's taxable year ending on the Closing Date
(collectively, the "Final S Period Tax Returns") or prior to the Closing Date
and all other Income Tax Returns of the SMR Companies for the taxable periods
ending on or prior to the Closing Date. Such Tax Returns shall be prepared in a
manner consistent with prior practice unless otherwise required by applicable
Tax laws. The Purchaser shall cause the Company to cooperate in the preparation
and filing of such Tax Returns
57
(including providing the Sellers with all information reasonably requested by
the Sellers in connection with the preparation of such Tax Returns). The Sellers
shall be responsible for preparing the Tax Returns of SMR Developers and SMR
Associates in respect of taxable periods ending on or before the Closing Date in
accordance with the principles set forth in this Section 13.2(a). The Sellers
shall provide the Purchaser with a copy of such Tax Returns together with the
schedules thereto, and a statement setting forth the amount of Tax shown due on
such Tax Return for which the Purchaser is liable, at least 10 days prior to the
due date (including any extensions thereof) for the filing of such Final S
Period Tax Returns, and the Purchaser shall have the right to review such Final
S Period Tax Returns prior to the filing of such Final S Period Tax Returns. The
Purchaser shall cause such Tax Returns to be signed by the appropriate SMR
Company so that they may be timely filed by or at the direction of the Sellers.
The Purchaser shall cause any amount of Tax shown as due from an SMR Company on
such Tax Return to be paid, subject to indemnification as provided in Article
11.
(ii) The Sellers and the Purchaser will, to the extent
permitted by applicable Law, elect with the relevant Taxing authority to close
the taxable period of each SMR Company on the Closing Date. In any case where
applicable Law does not permit an SMR Company to close its taxable year on the
Closing Date, then Taxes, if any, attributable to the taxable period of the SMR
Company beginning on or before and ending after the Closing Date shall be
allocated between (A) the period up to and including the Closing Date, and (B)
the period subsequent to the Closing Date by means of a closing of the books and
records of each of the SMR Companies as of the close of business on the Closing
Date.
(b) (i) Except as provided in Section 13.2(a), following the
Closing, Purchaser shall be responsible for preparing or causing to be prepared
all Tax Returns required to be filed by the SMR Companies after the Closing
Date.
(ii) With respect to any Tax Return required to be filed by
the Purchaser for a taxable period of an SMR Company beginning on or before the
Closing Date, (A) the Purchaser shall prepare (or cause to be prepared) such Tax
Returns in a manner consistent with the prior practice of the respective SMR
Company unless otherwise required by applicable Tax laws, and (B) the Purchaser
shall deliver, at
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least twenty (20) business days prior to the due date for filing of such Tax
Return (including extensions), to the Sellers (1) a statement setting forth the
amount of Tax shown due on such Tax Return for which the Sellers are liable
pursuant to Section 11.2(e) hereof (the "Statement"), and (2) copies of such Tax
Return. The Sellers shall have the right to review and comment on such Tax
Return and the Statement prior to the filing of such Tax Return. The Sellers and
the Purchaser agree to consult and resolve in good faith any issue arising as a
result of the review of such Tax Return and the Statement and to mutually
consent to the filing as promptly as possible of such Tax Return. In the event
the parties are unable to resolve any dispute within ten (10) business days
following the delivery of such Tax Return and the Statement, the parties shall
jointly request the Accounting Referee to resolve any issue in dispute as
promptly as possible; provided, however, that the sole issue before the
Accounting Referee shall be whether the changes proposed by the Sellers are
reasonable. If the Accounting Referee is unable to make a determination with
respect to any disputed issue within five (5) business days prior to the due
date (including extensions) for the filing of the Tax Return in question, then
the Purchaser may file such Tax Return on the due date (including extensions)
therefor without such determination having been made and without the Sellers'
consent. Notwithstanding the filing of such Tax Return, the Accounting Referee
shall make a determination with respect to any disputed issue, and the amount of
Taxes for which Sellers are liable under Section 11.2(e) hereof shall be as
determined by the Accounting Referee. The fees and expenses of the Accounting
Referee shall be paid one-half by the Purchaser and one-half by the Sellers. The
Purchaser shall pay or cause to be paid all Taxes shown due on such Tax Return.
Not later than (A) three days before the due date for the payment of Taxes with
respect to such Tax Return or (B) in the event of a dispute, five business days
after notice to the Sellers of the resolution thereof, the Purchaser shall be
paid such amount in accordance with Section 11.7.
(c) In the event that, following the Closing Date, any
Governmental Body notifies the Purchaser or any of the SMR Companies or any
affiliate thereof of its intention to audit, assess, examine or otherwise review
(collectively, "Audit") an S Period Return of the Company or an SMR Subsidiary
(or a Tax Return of SMR Developers or SMR Associates) relating to a taxable
period ending on or before the Closing Date, the Purchaser shall promptly notify
the
59
Sellers of the receipt of such notice. Upon receipt of notice of the Audit from
the Purchaser, the Sellers may, at the Sellers' option and sole expense, control
all further determinations with respect to the conduct of such Audit or any
administrative or judicial proceeding arising in respect thereof, including but
not limited to all negotiation and correspondence with such Governmental Body
and the compromise or settlement of such matter; provided, however, that if and
to the extent that the Audit involves an adjustment or issue which will produce
a Tax for which the Purchaser will be liable pursuant to Section 11.3(f), the
Purchaser shall be entitled to jointly control with the Sellers such adjustment
or issue, and neither the Sellers nor the Purchaser shall enter into a
settlement or closing or other agreement with respect to such issue or
adjustment without the consent of the other party, which consent shall not be
unreasonably withheld. The Purchaser shall cooperate and provide or cause the
Company to cooperate and provide the Sellers with access to such records and
personnel of the SMR Companies as the Sellers determine may be necessary in
connection with the conduct of such Audit or any administrative or judicial
proceeding in respect thereof. The Purchaser shall provide the Sellers with
copies of all correspondence, notices and other written materials received from
any Governmental Body.
(d)(i) Without prejudice to Sellers' rights under Section
13.2(c), the Purchaser will promptly notify the Sellers in writing of the
commencement of any claim, Audit, or other proposed change or adjustment by any
taxing authority concerning any Tax covered by Section 11.2(e) hereof (a "Tax
Claim"); provided, however, that a Purchaser Indemnified Party shall not be
foreclosed from seeking indemnification pursuant to Article XI by any failure to
provide such prompt notice of the existence of a Tax Claim except to the extent
that the Sellers have been damaged or prejudiced as a result of such delay.
(ii) The Sellers shall have the right to represent any SMR
Company's interests in any Tax audit or administrative or court proceeding
relating to taxable periods of such SMR Company ending on or prior to the
Closing Date and to employ counsel of its choice at its expense; provided that
(A) if the results of such Tax audit or proceeding (other than a Tax audit or
proceeding with respect to any S Corporation Period or any Tax Return of SMR
Associates or SMR Developers for a period ending on or before the Closing Date)
(i) involves an issue that recurs
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for a taxable period of an SMR Company beginning after the Closing Date (whether
or not such subsequent taxable period is the subject of such Tax audit or
proceeding at such time), (ii) would be binding on the Purchaser or the SMR
Companies for any taxable period beginning after the Closing Date, and (iii)
would materially and detrimentally affect the Tax liability of the SMR Companies
for a taxable period beginning after the Closing Date, then the Sellers shall
not enter into a settlement or closing or other agreement with respect thereto
without the consent of the Purchaser, which consent shall not be unreasonably
withheld and (B) if the Tax Claim involves an adjustment or issue which will
produce a Tax for which the Purchaser will be liable pursuant to Section
11.3(f), the Purchaser shall be entitled to jointly control with the Sellers
such adjustment or issue in the Tax audit or proceeding, and neither the Sellers
nor the Purchaser shall enter into a settlement or closing or other agreement
with respect to such issue or adjustment without the consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that, in a
case described in clause (A) above, if the Purchaser shall refuse to consent to
any settlement, closing or other agreement that the Sellers propose to accept (a
"Proposed Settlement"), then (1) the Sellers' liability with respect to the
subject matter of the Proposed Settlement shall be limited to the amount that
such liability would have been if the Proposed Settlement had been accepted, and
(2) the Purchaser shall be responsible for all expenses incurred thereafter in
connection with the contest of such audit or proceeding except to the extent
that the final settlement imposes less liability on the Sellers than the
Proposed Settlement would have imposed. The Purchaser agrees that, to the extent
reasonably requested in writing by the Sellers, it will cause the SMR Companies
to take such requested actions in the defense against or compromise of any claim
in any such Tax audit or proceeding. The Sellers shall promptly notify the
Purchaser if it decides not to control the defense or settlement of any such Tax
audit or administrative or court proceeding and the Purchaser thereupon shall be
permitted to defend and settle such Tax audit or proceeding; provided, however,
that there shall be no settlement or closing or other agreement with respect
thereto without the consent of the Sellers (which consent shall not be
unreasonably withheld).
(iii) With respect to any taxable period of an SMR Company
beginning before and ending after the Closing Date, the Purchaser and the
Sellers shall jointly control the
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defense and settlement of any Tax audit or administrative or court proceeding
and each party shall cooperate with the other party at their own expense and
there shall be no settlement or closing or other agreement with respect thereto
without the consent of the other party, which consent will not be unreasonably
withheld.
(e) A claim for indemnity under Sections 11.2(e) or 11.3(f)
may not be made later than 60 days after the expiration of the applicable Tax
statute of limitations with respect to the relevant taxable period.
13.3 Cooperation and Exchange of Information. The Sellers and
the Purchaser will provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Tax Return,
amended Tax Return or claim for refund, determining a liability for Taxes or a
right to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of relevant Tax Returns of the SMR Companies or portions
thereof, together with accompanying schedules, related work papers and documents
relating to rulings or other determinations by Tax authorities. No amended Tax
Return shall be filed for an SMR Company for any taxable period ending on or
before the Closing Date without the prior written consent of the Sellers (which
consent, in the case of an amended Tax Return of FSI or its Subsidiary, shall
not to be unreasonably withheld). The Purchaser shall retain all Tax Returns,
schedules and work papers, records and other documents ("Tax Materials") in its
or any of the SMR Companies' possession relating to Tax matters of the SMR
Companies for each taxable period first ending after the Closing Date and for
all prior taxable periods until the later of (i) the expiration of the statute
of limitations of the taxable periods to which such Tax Returns and other
documents relate, (ii) 6 years following the due date (without extension) for
such Tax Returns, or (iii) the completion of all Legal Proceedings (if any)
relating to any such Tax Return. The provisions of Section 10.3 shall apply to
the Tax Materials in the possession of the SMR Companies or the Purchaser. Any
information obtained under this Section 13.3 shall be kept confidential except
as may be otherwise necessary in connection with the filing of Tax Returns or
claims for refund or in conducting an audit or other proceeding.
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ARTICLE XIV
MISCELLANEOUS
14.1 Certain Definitions. As used in this Agreement, the
following terms have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Accounting Referee" has the meaning set forth in Section
1.3(c) hereof.
"Agreement" has the meaning set forth in the recitals hereof.
"Audit" has the meaning set forth in Section 13.2(c) hereof.
"Balance Sheet Date" has the meaning set forth in Section 3.7
hereof.
"Benefit Arrangement" has the meaning set forth in Section
3.12(b).
"Business" has the meaning set forth in the recitals hereof.
"CERCLA" has the meaning set forth in Section 3.15 hereof.
"Cash Payment" has the meaning set forth in Section 1.3
hereof.
"Closing" means the consummation of the sale and purchase of
the Securities pursuant to this Agreement.
"Closing Balance Sheet" has the meaning set forth in Section
1.3(a) hereof.
"Closing Date" has the meaning set forth in Section 2.1
hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning set forth in Section 3.3(a)
hereof.
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"Company" has the meaning set forth in the recitals hereof.
"Confidentiality Agreement" has the meaning set forth in
Section 5.2 hereof.
"Contract" means any contract (including, without limitation,
any resale agreement and any manufacturer authorization or medallion or sales or
distribution contract), agreement, indenture, note, bond, loan, instrument,
lease, conditional sale contract, mortgage, license, franchise, insurance
policy, commitment or other arrangement or agreement, whether written or oral.
"Covered Employees" has the meaning set forth in Section 7.1
hereof.
"Debt and Related Costs" has the meaning set forth in Section
1.3(a) hereof.
"Election" has the meaning set forth in Section 13.1(a)
hereof.
"Election Notice" shall have the meaning set forth in Section
13.1(b) hereof.
"Election Tax Cost" shall have the meaning set forth in
Section 13.1(c) hereof.
"Employee Benefit Plan" has the meaning set forth in Section
3.12(b) hereof.
"Environmental Laws" has the meaning set forth in Section
3.15.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agreement" has the meaning set forth in Section 1.8
hereof.
"ESOP Purchase Agreement" has the meaning set forth in the
Recitals hereof.
"ESOP Shares" has the meaning set forth in the recitals
hereof.
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"Exchange Act" means the Securities and Exchange Act of 1934,
as amended.
"Filed Purchaser SEC Documents" has the meaning set forth in
Section 4.7 hereof.
"Final Debt" has the meaning set forth in Section 1.3(c)
hereof.
"Final Net Worth" has the meaning set forth in Section 1.3(e)
hereof.
"Final S Period Tax Returns" has the meaning set forth in
Section 13.2(a) hereof.
"Financial Statements" has the meaning set forth in Section
3.7 hereof.
"FSI" has the meaning set forth in the recitals hereof.
"FSI ESOP" has the meaning set forth in the recitals hereof.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time.
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency or instrumentality thereof, or any court
or arbitrator (public or private).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, or borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such
65
property), (e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities, (h) all Indebtedness of others referred to in
clauses (a) through (f) above guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Indemnification Threshold" has the meaning set forth in
Section 11.7 hereof.
"Indemnified Party" has the meaning set forth in Section 11.4
hereof.
"Indemnifying Party" has the meaning set forth in Section 11.4
hereof.
"Initial Balance Sheet" has the meaning set forth in Section
3.7 hereof.
"Intangible Assets" has the meaning set forth in Section 3.10
hereof.
"Inventories" means all inventory, merchandise, finished
goods, and raw materials, packaging, supplies and other personal property
related to the Business maintained,
66
held or stored by or for the SMR Companies on the Closing Date and any prepaid
deposits for any of the same.
"Law" means any federal, state, local or foreign law
(including common law), statute, code, ordinance, rule, regulation or other
requirement.
"Legal Proceeding" means any judicial, administrative or
arbitral action, suit, proceeding (public or private), claim, investigation or
governmental proceeding.
"Letter of Credit" has the meaning set forth in Section 1.7
hereof.
"Liabilities" means any and all debts, liabilities and
obligations, whether accrued or fixed, absolute or contingent, matured or
unmatured or determined or determinable, including, without limitation, those
arising under any Law (including, without limitation, any Environmental Laws),
Legal Proceeding or Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Lien" means any lien, pledge, mortgage, deed of trust,
security interest, claim, lease, charge, option, right of first refusal,
easement or other real estate declaration, covenant, condition, restriction or
servitude, transfer restriction under any shareholder or similar agreement,
encumbrance or any other restriction, right in favor of any third party or
limitation whatsoever.
"LLC Interests" has the meaning set forth in the recitals
hereof.
"Loss" shall mean any and all claims, losses, liabilities,
costs, penalties, fines and expenses (including reasonable expenses for
attorneys, accountants, consultants and experts), damages, obligations to third
parties, judgments or awards that are imposed upon or otherwise incurred,
suffered or sustained by the relevant party.
"Material Adverse Change" means any material adverse change
on, or in, the assets, business, condition (financial or otherwise), results of
operations or liabilities of the SMR Companies, taken as a whole, or the
Purchaser.
67
"Material Adverse Effect" means an effect that results in or
causes, or has a reasonable likelihood of resulting in or causing, a Material
Adverse Change.
"Material Contracts" has the meaning set forth in Section 3.9
hereof.
"Net Proceeds" has the meaning set forth in Section 1.6(b)
hereof.
"Net Worth" has the meaning set forth in Section 1.3(a)
hereof.
"Non-Third Party Claim" has the meaning specified in Section
11.6 hereof.
"Order" means any order, injunction, judgment, decree, ruling,
writ, assessment or arbitration award.
"Owned Properties" has the meaning set forth in Section 3.5
hereof.
"Partnership Interests" has the meaning set forth in the
recitals hereof.
"Permit" means any written approval, authorization, consent,
franchise, license, permit or certificate by any Governmental Body.
"Permitted Exceptions" means (a) statutory Liens for current
taxes, assessments or other governmental charges not yet delinquent or the
amount or validity of which is being contested in good faith by appropriate
proceedings, (b) mechanics', carriers', workers', repairers' and similar Liens
arising or incurred in the ordinary course of business that are not in the
aggregate material to the SMR Companies, taken as a whole, and which do not
relate to amounts overdue by more than 30 days (unless such amounts are the
subject of a good faith dispute) (c) zoning, entitlement and other land use and
environmental regulations by Governmental Bodies, provided that such regulations
have not been violated, (d) purchase money Liens or purchase money security
interests upon or in any inventory acquired or held by the SMR Companies in the
ordinary course of business to secure the purchase price of such inventory or to
secure indebtedness incurred solely for the purpose of financing the acquisition
of such inventory and (e) such other customary imperfections in title to real
property, charges, easements, restrictions
68
and encumbrances (other than for borrowed money) which do not, render title to
the property encumbered thereby unmarketable and to not, individually or in the
aggregate, materially adversely affect the value or use of such property for its
current and anticipated purposes.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, limited liability company,
trust, unincorporated organization or Governmental Body.
"Personal Property Leases" has the meaning set forth in
Section 3.6(a) hereof.
"Proceedings" has the meaning set forth in Section 14.3
hereof.
"Public Offering" has the meaning set forth in Section 1.5
hereof.
"Purchase Price" has the meaning set forth in Section 1.2
hereof.
"Purchaser" has the meaning set forth in the recitals hereof.
"Purchaser Common Stock" has the meaning set forth in Section
1.2 hereof.
"Purchaser Documents" has the meaning set forth in Section 4.2
hereof.
"Purchaser Preferred Stock" has the meaning set forth in
Section 1.2 hereof.
"Purchaser Representatives" has the meaning set forth in
Section 5.2 hereof.
"Purchaser SEC Documents" has the meaning set forth in Section
4.6 hereof.
"Purchaser Shares" has the meaning set forth in Section 1.2
hereof.
"Real Property Lease" has the meaning set forth in Section 3.5
hereof.
69
"Receivables" means any and all accounts receivable, notes and
other amounts receivable by any SMR Company from third parties, including,
without limitation, customers, arising from the conduct of the Business or
otherwise before the Closing Date, whether or not in the ordinary course,
together with all unpaid financing charges accrued thereon.
"Returns" has the meaning set forth in Section 3.11 hereof.
"S Period Return" has the meaning set forth in Section 13.2(a)
hereof.
"Schroders" has the meaning set forth in Section 3.17 hereof.
"Securities" has the meaning set forth in the recitals hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller's Documents" has the meaning set forth in Section 3.2
hereof.
"Sellers" has the meaning set forth in the recitals hereof.
"Shares" has the meaning set forth in the recitals hereof.
"Shelf Registration" has the meaning set forth in Section 1.5
hereof.
"SMR Associates" has the meaning set forth in the recitals
hereof.
"SMR Companies" means, collectively and individually, the
Company, SMR Associates, SMR Developers and the SMR Subsidiaries.
"SMR Developers" has the meaning set forth in the recitals
hereof.
"SMR Properties" has the meaning set forth in Section 3.5
hereof.
70
"SMR Subsidiaries" means, collectively and individually, SMR
Holdings, Inc., an Ohio corporation, SMR Aerospace Management Company, Inc., an
Ohio corporation, Plush Mills, Inc., a Rhode Island corporation, SMR
Technologies, Inc., an Ohio corporation, Flight Structures, Inc., a Washington
corporation, and Flight Structures International, Inc., a Barbados corporation.
"Subsidiary" means with respect to any Person, any
corporation, partnership or other business entity of which an aggregate of 50%
or more of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors, managers, trustees or other controlling
persons, is, at the time, directly or indirectly, owned or controlled by such
Person and/or one or more Subsidiaries of such Person (irrespective of whether,
at the time, capital stock of any other class or classes of such entity shall
have or might have voting power by reason of the happening of any contingency).
"Taxes" has the meaning set forth in Section 3.11 hereof.
"Tax Claim" has the meaning set forth in Section 13.2(d)
hereof.
"Tax Return" has the meaning set forth in Section 3.11 hereof.
"Third Party Claim" has the meaning specified in Section 11.4
hereof.
14.2 Entire Agreement. This Agreement (with its Schedules and
Exhibits), together with the Seller's Documents and Purchaser Documents,
contain, and is intended as, a complete statement of all of the terms and the
arrangements between the parties hereto with respect to the matters provided for
herein, and supersedes any and all previous agreements and understandings
between the parties hereto with respect to those matters.
14.3 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York applicable to
agreements made and to be performed in such jurisdiction. Any action to enforce,
which arises out of or in any way relates to, any of the provisions of this
Agreement or the instruments, agreements
71
and other documents contemplated hereby shall be brought and prosecuted in the
courts of the State of Ohio or of the United States for the District of Ohio.
Each party irrevocably: (i) submits to the exclusive jurisdiction of the
aforesaid courts, and (ii) waives any objection which it may have at any time to
the laying of venue of any suit, action or proceeding ("Proceedings") brought in
any such court, waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with respect to such
Proceedings, that such court does not have jurisdiction over such party. The
parties irrevocably consent to service of process given in the manner provided
for notices in Section 14.7. Nothing in this Agreement will affect the right of
any party to serve process in any other manner permitted by law.
14.4 Transfer and Other Taxes. The Purchaser, on the one hand,
and the Sellers, on the other hand, shall each bear 50% of the cost of (a) all
transfer, stamp and documentary taxes and fees imposed with respect to
instruments of conveyance in the transactions contemplated hereby and (b) all
sales, use, gains, real property transfer and other transfer or similar taxes
imposed by reason of the transfer of the Securities contemplated hereunder. The
Purchaser or the Sellers, as the case may be, shall execute and deliver to the
other(s) at the Closing any certificates or other documents as the other may
reasonably request to perfect any exemption from any such transfer, documentary,
sales, gains, use or similar tax.
14.5 Expenses. Each of the parties hereto shall bear its own
expenses (including, without limitation, fees and disbursements of its counsel,
accountants and other experts), incurred by it in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
each of the other documents and instruments executed in connection with or
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby. Notwithstanding the foregoing, the SMR
Companies may pay the foregoing expenses of the Sellers, subject to any
adjustment to the Purchase Price required by Section 1.3 hereof.
14.6 Table of Contents and Headings. The table of contents and
section headings of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this Agreement.
72
14.7 Notices. All notices and other communications under this
Agreement shall be in writing (including, without limitation, telegraphic,
telex, telecopy or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand or by a nationally recognized courier
service guaranteeing overnight delivery to a party at the following address (or
to such other address as such party may have specified by notice given to the
other party pursuant to this provision):
If to the Sellers, to:
c/o SMR Aerospace
6835 Ridge Road
P.O. Box 326
Sharon Center, Ohio 44274
Facsimile: (330) 239-4714
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Dennis J. Block, Esq.
Raymond O. Gietz, Esq.
Facsimile: (212) 310-8007
If to the Purchaser, to:
BE Aerospace, Inc.
1400 Corporate Center Way
Wilmington, Florida 33414
Facsimile: (561) 791-3966
Attention: Chief Financial Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile: (212) 848-7179
Attention: Alfred J. Ross, Esq.
All such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three days after deposit in the
mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the
73
cable company, delivered by hand to the addressee or one day
after delivery to the courier service.
14.8 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validly or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
14.9 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors, heirs, executors and permitted assigns. Nothing in this Agreement
shall create or be deemed to create any third-party beneficiary rights in any
Person not party to this Agreement, except as provided in Section 7.1 hereof. No
assignment of this Agreement or of any rights or obligations hereunder may be
made by any party (by operation of law or otherwise) without the prior written
consent of each of the other parties hereto and any attempted assignment without
such required consents shall be void.
14.10 Amendments. (a) Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, (i) in the case of an amendment, by the Purchaser and the Sellers, and
(ii) in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or future exercise thereof
or the exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
14.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
74
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date and year first above written.
BE AEROSPACE, INC.
By:/s/ Thomas P. McCaffrey
------------------------------------------
Name: Thomas P. McCaffrey
Title: Chief Financial Officer
SELLERS
---------------------------------------------
Oscar J. Mifsud
---------------------------------------------
Patrick L. Ryan
---------------------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By: -----------------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By: -----------------------------------------
Patrick L. Ryan, Trustee
DAVID B. SMITH TRUST - 1998
By: -----------------------------------------
David B. Smith, Trustee
75
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date and year first above written.
BE AEROSPACE, INC.
By:------------------------------------------
Name: Thomas P. McCaffrey
Title: Chief Financial Officer
SELLERS
/s/ Ocsar J. Mifsud
---------------------------------------------
Oscar J. Mifsud
/s/ Patrick L. Ryan
---------------------------------------------
Patrick L. Ryan
/s/ David B. Smith
---------------------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By: /s/ Oscar J. Mifsud
-----------------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By: /s/ Patrick L. Ryan
-----------------------------------------
Patrick L. Ryan, Trustee
DAVID B. SMITH TRUST - 1998
By: /s/ David B. Smith
-----------------------------------------
David B. Smith, Trustee
75
EXHIBIT A
================================================================================
Registration and Transfer Agreement
by and between
BE Aerospace, Inc.
and
The Stockholders Signatory hereto
dated as of
August 7, 1998
================================================================================
Registration and Transfer Agreement
by and between
BE Aerospace, Inc.,
and The Stockholders Signatory hereto
dated as of
August 7, 1998
TABLE OF CONTENTS
-----------------
PAGE
----
1. Certain Definitions..............................................4
2. Restrictions on Transferability..................................5
3. Restrictive Legends..............................................5
4. Registered Public Offering.......................................6
5. Shelf Registration of Registrable Securities.....................7
6. Expenses of Registration.........................................7
7. Indemnification..................................................7
8. Obligations of the Company.......................................9
9. Information by Stockholders.....................................10
10. Securities Law Compliance.......................................10
11. Standoff Agreement..............................................11
12. Investment Representation.......................................11
13. Amendment.......................................................11
14. Notices.........................................................12
15. Transferability.................................................12
16. Governing Law...................................................12
17. Severability....................................................12
18. Counterparts....................................................12
REGISTRATION AND TRANSFER AGREEMENT
This Registration and Transfer Agreement ("Agreement") is entered into as
of August 7, 1998 by and between BE Aerospace, Inc., a Delaware corporation (the
"Company"), and the stockholders signatory hereto (the "Stockholders"), with
reference to certain shares of Common Stock, $.01 par value (the "Common
Stock"), of the Company.
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"ACQUISITION AGREEMENT" shall mean the Acquisition Agreement dated
as of July 21, 1998 among the Stockholders and the Company.
"COMMISSION" means the U.S. Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"COMMON SHARES" means the 4,000,000 shares of Common Stock of the
Company issued pursuant to the Acquisition Agreement.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" means each Stockholder and any permitted assignee or
transferee of such Stockholder.
"REGISTRABLE SECURITIES" means the Common Shares; provided, however,
that Common Shares shall be treated as Registrable Securities only if and
so long as they have not been sold in a completed public distribution or a
completed public securities transaction.
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement pursuant to the
Securities Act and the declaration or ordering of the effectiveness of
such registration statement by the Commission.
"REGISTRATION EXPENSES" means all expenses incurred by the Company
in complying with Sections 5 and 6 hereof, including, without limitation,
all registration, listing, qualification and filing fees, printing fees,
transfer agent and
register fees, fees and disbursements of counsel and experts for the
Company and blue sky fees and expenses incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"RESTRICTED SECURITIES" shall mean the Common Shares of the Company
required to bear the legend set forth in paragraph (a) of Section 3
hereof.
"SECURITIES ACT" shall mean the U.S. Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities sold by
the Stockholders and all fees and disbursements of counsel for the
Stockholders in connection therewith.
"SHARE DISPOSITION AGREEMENT" shall mean the Share Distribution
Agreement dated as of the date hereof among the Stockholders and the
Company.
"SMR COMPANIES" shall have the meanings specified in the Acquisition
Agreement.
2. RESTRICTIONS ON TRANSFERABILITY. On or prior to December 31, 1998,
the Common Shares may be sold, assigned, transferred or pledged only in
accordance with the conditions specified in the Share Disposition Agreement.
3. RESTRICTIVE LEGENDS.
(a) Each certificate or instrument representing Common Shares or any
securities issued in respect of the Common Shares upon any stock split, stock
dividend, combination or similar recapitalization, shall (unless otherwise
permitted by the provisions of Section 4 below) bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAW.
SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN
2
THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
THE SECURITIES ACT OF 1933.
(b) Each certificate or instrument representing Common Shares shall
also bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF AN AGREEMENT BETWEEN THE HOLDER HEREOF AND THE
CORPORATION WHICH INCLUDES RESTRICTIONS ON CERTAIN SALES OF THE
SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST
TO THE SECRETARY OF BE AEROSPACE, INC.
(c) Each Holder consents to the Company's making a notation on its
records and giving instructions to any transfer agent of the Common Shares in
order to implement the restrictions on transfer established in this Agreement.
The legend placed on any certificate pursuant to Section 3(a) and Section 3(b)
and any notations or instructions with respect to the Common Shares represented
by such certificate will be promptly removed, and the Company will promptly
(i.e., in sufficient time to permit such Holder to settle any such sale three
business days after the applicable trade date) issue a certificate without such
legend to the Holder of such Common Shares (i) in the case of the legend
described in Section 3(a), if the Company shall have directed, or consented to,
such sale pursuant to the terms of the Share Disposition Agreement or the
restrictions contained therein shall have expired and (ii) in the case of the
legend described in Section 3(b), if such Common Shares are registered under the
Securities Act (but only in connection with the actual sale of such Common
Shares) and a prospectus meeting the requirements of Section 10 of the
Securities Act is available.
4. REGISTERED PUBLIC OFFERING. (a) The Company shall use commercially
reasonable efforts to file a registration statement with the Commission to
register the Registrable Securities under the Securities Act and to cause such
registration statement (which shall include interim financial statements of the
Company and its subsidiaries for the fiscal quarter ending August 31, 1998) to
become effective as soon as practicable after August 31, 1998. The Stockholders
shall offer such amount of the Registrable Securities
3
as the Company shall determine for public sale (the "Public Offering"), pursuant
to such registration statement.
(b) UNDERWRITING. The Stockholders and the Company shall enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company, provided however, that the
Stockholders shall be required by such underwriting agreement to provide
indemnification to the underwriter only to the extent that the Stockholders are
required to provide indemnification to the Company pursuant to Section 7(b)
hereof. The Company shall determine the number of shares to be underwritten, and
may limit the Registrable Securities to be included in such registration. The
Company shall so advise the Stockholders of the number of shares of Registrable
Securities that may be included in the registration and underwriting by the
Stockholders and such number shall thereafter be reduced by the number of shares
determined by the Company not to be included in such registration, such cutback
to be allocated among the Stockholders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by the Stockholders.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 4 prior to the effectiveness of such registration whether or not the
Stockholders have elected to include securities in such registration.
5. SHELF REGISTRATION OF REGISTRABLE SECURITIES. In the event that the
Stockholders are unable to sell all of the Registrable Securities in the Public
Offering, the Company shall file a shelf registration statement on Form S-3 (or
successor form) under the Securities Act with the Commission with respect to the
Registrable Securities as expeditiously as reasonably possible following the
closing of the Public Offering and keep such registration statement effective
until December 31, 1998 unless the Stockholders have sold all of their Common
Shares prior to such date. If at any time prior to December 31, 1998 the
Stockholders desire to sell any of the Registrable Securities then held by them
pursuant to such shelf registration statement, the Company shall have the right
to direct and approve such sale in accordance with the terms of the Share
Disposition Agreement, including to designate any underwriters to administer the
offering, and the Company shall enter into underwriting or distribution
agreements with any such underwriter(s) or distributor(s) of such offering,
which agreements shall contain such representations, warranties and covenants by
the Company, and such other terms and conditions and indemnity and contribution
provisions as are contained in the form of underwriting or distribution
agreement customarily used in connection with similar offerings by the
4
underwriters or distributors selected for such offering and take such other
actions as the Stockholders or the managing underwriter or distributor, if any,
reasonably require in order to expedite or facilitate the disposition of such
Registrable Securities. The Company shall pay all Selling Expenses incurred in
connection with such offering.
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration pursuant to Sections 4 or 5 shall be borne by
the Company. All Selling Expenses relating to securities registered on behalf of
the Stockholders shall be borne by the Company.
7. INDEMNIFICATION.
(a) The Company will indemnify each Stockholder against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any registration, qualification or
compliance effected pursuant to this Agreement, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act or any other federal,
state or common law rule or regulation applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each Stockholder for any legal and any other expenses incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, as incurred, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by any Stockholder,
pursuant to Item 507 of Regulation S-K promulgated under the Exchange Act,
expressly for use therein.
(b) The Stockholders, jointly and severally, will indemnify the
Company, each of its directors and officers, underwriters, and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration
5
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such directors, officers, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, as incurred, in
each case to the extent, but only to the extent, that such untrue statement (or
alleged untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by any Stockholder, pursuant to Item 507 of Regulation S-K promulgated
under the Exchange Act, expressly for use therein (and not any other information
furnished by any Stockholder).
(c) Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of any Indemnified Party. Each party
entitled to indemnification under this Section 7 (the "Indemnified Party") shall
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into a settlement 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
to such claim or litigation. Notwithstanding anything to the contrary herein,
any Indemnified Party shall have the right to employ separate counsel to
represent such Indemnified Party, if, in such Indemnified Party's reasonable
judgment (based on advice of counsel) a conflict of interest between such
Indemnifying Party and such Indemnified Party exists with respect to such claim
or litigation or the Indemnified Party has defenses to such claim or litigation
that differ from those of the Indemnifying Party (the fees and expenses of such
counsel, in either such case, are to be borne by the Indemnifying Party). In the
event the Indemnifying Party exercises its right to assume the defense against
such claim or in such litigation as provided above, the Indemnified Party shall
cooperate with the Indemnifying
6
Party in such defense and make available to the Indemnifying Party, at the
Indemnifying Party's expense, all pertinent records, materials and information
in its possession or under its control relating thereto as are reasonably
required by the Indemnifying Party. Similarly, in the event the Indemnified
Party is, directly or indirectly, conducting the defense against such claim or
in such litigation, the Indemnifying Party shall cooperate with the Indemnified
Party in such defense and make available to the Indemnified Party all such
records, materials and information in the Indemnifying Party's possession or
under the Indemnifying Party's control relating thereto as are reasonably
required by the Indemnified Party.
(d) If the indemnification provided for in this Section 7 is
unavailable to an Indemnified Party in respect of any expenses, claims, losses,
damages or liabilities referred to in this Section 7 by reasons other than those
set forth in subparagraphs (a) or (b) above, then the Indemnifying Party shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such expenses, claims, losses, damages or liabilities in such proportion as
is appropriate to reflect the relative fault of the Indemnifying Party and the
Indemnified Party in connection with the actions (or inaction) that resulted in
such expenses, claims, losses, damages or liabilities as well as any other
relevant equitable considerations. The relative fault of the Indemnifying Party
on the one hand and Indemnified Party on the other hand shall be determined by
reference to, among other things, whether any action (or inaction) in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by such Indemnifying Party or Indemnified Party, and the
parties' relative knowledge, intent, access to information and opportunity to
correct or prevent such action (or inaction). The parties agree that it would
not be just and equitable if contribution pursuant to this Section were
determined by pro rata allocation or by any other method of allocation which
does not take into account the equitable considerations referred to above. In
any case, (A) each Stockholder will not be required to contribute any amount in
excess of the proceeds received by it from all such Registrable Securities
offered by it pursuant to such registration statement; and (B) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
7
8. OBLIGATIONS OF THE COMPANY. The Company shall:
(a) As expeditiously as reasonably possible, prepare and file, after
August 31, 1998, with the Commission the registration statement referred to in
Sections 4 and 5 hereof and use its diligent best efforts to cause such
registration statement to become effective and to keep such registration
statement effective (i) for 30 days in the case of the registration under
Section 4 and (ii) until December 31, 1998 in the case of the shelf registration
statement under Section 5 for the period provided in Section 5 hereof.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statements and file all reports under the
Exchange Act as may be necessary (i) to update and keep such registration
statement effective as provided in Section 8(a) above, (ii) to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement and (iii) to reflect a
modification in the manner of distribution of the Registrable Securities.
Notwithstanding anything else to the contrary contained herein, the Company
shall not be required to disclose in any prospectus prepared pursuant to Section
5 hereof any confidential information concerning pending events, transactions or
conditions not otherwise required to be disclosed by applicable securities laws.
(c) Furnish to each Stockholder such numbers of copies of the
registration statement, each amendment thereto and of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as it may reasonably request in order to
facilitate the disposition of Registrable Securities owned by it.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities laws as shall
be reasonably requested by each Stockholder, provided that the Company shall not
be required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions unless it is already subject to such jurisdiction.
(e) Promptly notify each Stockholder, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material
8
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which the prospectus is
used.
(f) During reasonable business hours make available for inspection
by each Stockholder, any underwriter or distributor participating in any
disposition pursuant to a registration statement, and any attorney, accountant
or other similar professional advisor retained by any Stockholder or underwriter
or distributor (collectively, the "Inspectors"), all pertinent financial,
corporate and other records and documents (collectively, the "Records"), and all
pertinent real and personal property of the Company, as shall be reasonably
necessary to enable such Inspectors to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement.
9. INFORMATION BY STOCKHOLDERS. Each Stockholder shall furnish to the
Company such information regarding himself, the Registrable Securities held by
him and the distribution proposed by such Stockholder as the Company may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
10. SECURITIES LAW COMPLIANCE.
(a) Each Stockholder covenants that he will comply with the
prospectus delivery requirements of the Securities Act with respect to any
registration statement filed pursuant to Section 4 or Section 5 of this
Agreement. Each Stockholder agrees to make customary representations and
warranties to the Company and the underwriters or distributors, if any, in form,
substance and scope as are customarily made as to ownership of stock by selling
stockholders in underwritten public offerings, but each Stockholder shall not be
required to make any representation or warranty as to the accuracy or
completeness of the registration statement (except as to written information
furnished to the Company by such Stockholder expressly for use therein).
(b) Each Stockholder agrees that, immediately upon receipt of a
notification as referred to in subparagraph (e) of Section 8, it will refrain
from selling Registrable Securities under the registration statement filed
pursuant to Section 4 or Section 5 of this Agreement until (i) subsequently
notified by the Company that the registration statement is current or (ii)
receipt of a favorable opinion of counsel as hereinbelow provided. The Company
agrees that it will consult with each Stockholder following the
9
giving of any such notification, and that in the event any Stockholder is of the
view that its securities could be sold in compliance with the Securities Act and
the Exchange Act without disclosure of the nonpublic information which is the
subject of the notification, the parties hereto agree to be bound by an opinion
of Shearman & Sterling or other counsel reasonably satisfactory both to such
Stockholder and to the Company as to whether such sales can be made without
violation of the Securities Act or the Exchange Act.
11. STANDOFF AGREEMENT. Each Stockholder agrees in connection with any
registration of the Company's securities that, upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in such
registration), without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration as may be requested by the
Company or such managing underwriters.
12. INVESTMENT REPRESENTATION. Each Stockholder represents and warrants
to the Company that it is acquiring the Common Shares for investment only and
not with a view to or in connection with any distribution of the Common Shares.
13. AMENDMENT. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and each Stockholder. Any amendment or waiver effected in accordance
with this Section shall be binding upon each Holder of any Registrable
Securities then outstanding, each future Holder of all such Registrable
Securities, and the Company.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, courier service, United States mail or by facsimile,
addressed as follows:
(i) if to the Stockholders:
Oscar J. Mifsud and
Oscar J. Mifsud Trust -- 1998
541 Leeds Gate Lane
Wadsworth, OH 44281
Attention: Oscar J. Mifsud
10
Telecopier: (330) 335-3216
Patrick L. Ryan and
Patrick L. Ryan Trust -- 1998
624 Tamarac Trail
Wadsworth, OH 44281
Attention: Patrick L. Ryan
Telecopier: (330) 665-5302
David B. Smith and
David B. Smith Trust -- 1998
520 West Point Drive
Akron, OH 44333
Attention: David B. Smith
Telecopier: (330) 665-5302
11
with a copy to:
Weill, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: Raymond O. Gietz, Esq.
(ii) if to the Purchaser:
BE Aerospace, Inc.
1400 Corporate Center Way
Wellington, Florida 33414
Telecopier: (561) 791-3966
Attention: Chief Financial Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Alfred J. Ross, Esq.
or to such address of a party of which such party has given notice to the other
parties pursuant to this Section.
15. TRANSFERABILITY. Notwithstanding any provision contained in this
Agreement to the contrary, the Purchaser's rights and benefits under Sections 5
and 6 hereof are rights
12
and benefits personal to each Stockholder and may not be assigned or transferred
to or held for the benefit of any other person.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws (other than those with respect to choice of law) of the
State of New York.
17. SEVERABILITY. The provisions of this Agreement are severable, and in
the event that any one or more provisions are deemed illegal or unenforceable,
the remaining provisions shall remain in full force and effect.
18. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
13
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BE AEROSPACE, INC.
By: /s/Thomas P. McCaffrey
---------------------------------------
Name: Thomas P. McCaffrey
Title: Chief Financial Officer
STOCKHOLDERS
/s/Oscar J. Mifsud
---------------------------------------
Oscar J. Mifsud
/s/Patrick L. Ryan
---------------------------------------
Patrick L. Ryan
/s/David B. Smith
---------------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By: /s/Oscar J. Mifsud
---------------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By: /s/Patrick L. Ryan
---------------------------------------
Patrick L. Ryan, Trustee
14
DAVID B. SMITH TRUST - 1998
By: /s/David B. Smith
---------------------------------------
David B. Smith, Trustee
15
EXHIBIT B
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of August 7, 1998 (the
"Agreement"), among Oscar J. Mifsud and the Oscar J. Mifsud Trust -- 1998
(collectively, "Mifsud"), Patrick L. Ryan and the Patrick L. Ryan Trust -- 1998
(collectively, "Ryan") and David B. Smith and the David B. Smith Trust -- 1998
(collectively, "Smith", and together with Mifsud and Ryan, the "Sellers"), BE
Aerospace, Inc., a Delaware corporation (the "Purchaser"), and The Bank of New
York, a New York banking corporation in its capacity as escrow agent hereunder
(the "Escrow Agent").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Sellers and the Purchaser have entered into an
Acquisition Agreement, dated as of July 21, 1998 (the "Acquisition Agreement";
terms defined in the Acquisition Agreement and not otherwise defined herein are
used herein as defined in the Acquisition Agreement), pursuant to which the
Purchaser has agreed to purchase from the Sellers, and the Sellers have agreed
to sell to the Purchaser, the Securities;
WHEREAS, Section 1.8 of the Acquisition Agreement contemplates
that at the Closing the Purchaser will deposit into escrow 400,000 Purchaser
Shares (the "Escrowed Shares") and an amount of cash in immediately available
funds equal to 10% of the Cash Payment (the "Escrowed Cash");
WHEREAS, the Escrow Agent will hold the Escrowed Fund (as
defined below) in escrow to secure the indemnification obligations of the
Sellers contained in Article 11 of the Acquisition Agreement, and will deliver
and distribute the Escrow Fund in accordance with the terms and conditions of
this Agreement;
WHEREAS, a copy of the Acquisition Agreement has been
delivered to the Escrow Agent, and the Escrow Agent is willing to act as the
Escrow Agent hereunder;
WHEREAS, the Purchaser and the Sellers have entered into a
Registration and Transfer Agreement dated as of the date hereof (the
"Registration Rights Agreement");
WHEREAS, the Purchaser and the Sellers have entered into a
Share Disposition Agreement dated as of the date hereof (the "Share Disposition
Agreement");
WHEREAS, the Sellers have appointed Patrick L. Ryan to act as
their representative (the "Sellers' Representative") in connection with certain
matters hereunder; and
2
WHEREAS, the Escrow Agent will hold the Escrow Fund (as
defined below) in Account No. 001655 at The Bank of New York, ABA No. 021000018
(the "Escrow Account").
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements contained herein and in the Acquisition Agreement, and
intending to be legally bound hereby, the parties hereby agree as follows:
1. Appointment and Agreement of Escrow Agent. The Purchaser
and the Sellers, individually and collectively, hereby appoint the Escrow Agent
to serve as, and the Escrow Agent hereby agrees to serve as, escrow agent upon
the terms and conditions of this Agreement.
2. Establishment of the Escrow Account. (a) Pursuant to
Section 1.8 of the Acquisition Agreement, the Purchaser shall deliver to the
Escrow Agent at the Closing the Escrowed Shares and the Escrowed Cash. The
Escrow Agent shall hold in escrow pursuant to this Agreement: (i) the Escrowed
Shares, all dividends and other distributions received by the Escrow Agent in
respect of such shares, all proceeds from the sale of such shares, all payments
made by the Purchaser to the Sellers in respect of such Escrowed Shares pursuant
to Section 2(a) of the Share Disposition Agreement, and all interest and other
amounts earned on such proceeds, and (ii) the Escrowed Cash and all interest and
other amounts earned thereon ((i) and (ii) together, the "Escrow Fund"). On the
date hereof, the Sellers shall deliver to the Escrow Agent stock transfer powers
duly executed in blank with respect to the Escrow Shares in such number as may
reasonably be requested by the Purchaser to allow for subdividing the
certificates for Escrowed Shares into smaller denominations in connection with
any distributions of such Escrowed Shares that may be required pursuant to this
Agreement. Each of the Sellers hereby agrees to execute and deliver to the
Escrow Agent, upon the request of the Purchaser or the Escrow Agent, additional
stock transfer powers and other documents and instruments to be held by the
Escrow Agent, in order to permit the Escrow Agent to distribute or transfer
Escrowed Shares as contemplated by this Agreement.
(b) Each of the Purchaser and the Sellers confirms to the
Escrow Agent and to each other that the Escrowed Shares and the Escrowed Cash is
free and clear of any pledge, lien, security interest, mortgage, charge, adverse
claim of ownership or use, or other encumbrance of any kind, except as may be
created by this Agreement and the Acquisition Agreement.
(c) The Sellers hereby authorize the Purchaser to deliver
directly to the Escrow Agent all dividends and other distributions made in
respect of any Escrowed Shares (whether paid in cash, securities or other
property) held in the Escrow Account, and all proceeds from the sale of any such
Escrowed Shares, which dividends, distributions and
3
proceeds shall be added to and become part of the Escrow Fund of which the
respective Escrowed Shares are or were a part, as the case may be.
(d) While any Escrowed Shares are held in escrow in the Escrow
Account, and pending the distribution or sale thereof pursuant to this Agreement
or the Acquisition Agreement, the Sellers will have all rights with respect to
the Escrowed Shares held in the Escrow Account, including, without limitation,
the right to vote such shares, except (i) the right of possession thereof, (ii)
the right to sell, assign, pledge, hypothecate or otherwise dispose of such
shares or any interest therein, except as set forth in Section 5 hereof, and
(iii) the right to receive any dividends or other distributions in respect
thereof. The Sellers shall be responsible for and pay and discharge all taxes,
assessments and governmental charges imposed on or with respect to the Escrowed
Shares held in the Escrow Account.
3. Purpose of the Escrow Funds. The Escrowed Cash and Escrowed
Shares shall be held in escrow by the Escrow Agent to secure the indemnification
obligations of the Selling Shareholders contained in Article 11 of the
Acquisition Agreement.
4. Payments from the Escrow Account. (a) If, at any time on or
prior to the Distribution Date (as defined below), the Purchaser shall deliver
(the date of such delivery being the "Escrow Notice Delivery Date") to the
Sellers' Representative a certificate of the Purchaser, executed by an
authorized officer of the Purchaser (a "Purchaser's Certificate"), which
Purchaser's Certificate shall:
(i) state that the Purchaser is entitled to indemnification
under Section 11.2(b) of the Acquisition Agreement;
(ii) specify in reasonable detail the nature and amount (or if
not yet determined, a good faith estimate of the amount) of each
individual item for which indemnification is sought (each being an
"Indemnification Item"); and
(iii) state the aggregate amount (or if not yet determined, a
good faith estimate of the amount) of all such Indemnification Items.
For purposes of this Agreement, the "Distribution Date" shall
be December 31, 1999.
(b) If the Sellers' Representative, acting on behalf of the
Sellers, shall object to any amount claimed in connection with any
Indemnification Item specified in any Purchaser's Certificate, the Sellers'
Representative, acting on behalf of the Sellers, shall, within 20 business days
after the Escrow Notice Delivery Date, deliver to the Purchaser a certificate,
executed by the Sellers' Representative (a "Sellers' Certificate"), (i)
specifying each such amount to which the Sellers object and (ii) specifying in
reasonable detail the nature
4
and basis for each such objection. If the Purchaser shall not have received a
Sellers' Certificate objecting to the amount claimed with respect to an
Indemnification Item within 20 business days after the Escrow Notice Delivery
Date, the Sellers shall be deemed to have acknowledged the correctness of the
amount (the "Claim Amount") claimed on such Purchaser's Certificate with respect
to such Indemnification Item, and the Sellers' Representative shall promptly
thereafter (but not before the earlier of (x) the date upon which all Escrowed
Shares have been sold and converted into cash and (y) December 31, 1998) direct
the Escrow Agent, in writing, to transfer to the Purchaser Escrowed Cash in an
amount equal to the lesser of (x) the Claim Amount and (y) the aggregate amount
of the then remaining Escrowed Cash.
(c) If the Purchaser receives, within 20 business days after
delivery by it of a Purchaser's Certificate, a Sellers' Certificate objecting to
any amount claimed with respect to any Indemnification Item specified in such
Purchaser's Certificate, the amount so objected to shall be held by the Escrow
Agent and shall not be released from the Escrow Account, except in accordance
with either (i) written instructions executed by each of the Purchaser and the
Sellers' Representative or (ii) the final nonappealable judgment of a court
having jurisdiction over the matters relating to the claim by the Purchaser for
indemnification from the Sellers. Following the receipt by the Escrow Agent of
such written instructions or final judgment, the Escrow Agent shall promptly
thereafter transfer to the Purchaser Escrowed Cash in an amount equal to the
lesser of (x) the amount specified in such written instructions or final
judgment and (y) the aggregate amount of the then remaining Escrowed Cash.
(d) Notwithstanding the limitations set forth in Section 4(a)
of this Agreement, following the Distribution Date, the Purchaser shall be
entitled to assert claims against the Escrow Account under this Section 4 in
respect of all Losses that were included in determining the Reserved Amount (as
defined below).
(e) On the Distribution Date, the Escrow Agent shall deliver
to the Sellers, the then remaining Escrowed Cash in the Escrow Account, if any,
less a portion of such Escrowed Cash in an amount equal to the Reserved Amount
(as defined below). The "Reserved Amount" shall equal the lesser of (1) the
aggregate of the amounts claimed in all Purchaser's Certificates delivered to
the Escrow Agent prior to the Distribution Date (which claims shall not have
been resolved on or prior to the Distribution Date) and (2) the aggregate value
of the then remaining Escrowed Cash and shall be set forth in such written
instructions to the Escrow Agent.
(f) Upon the termination of this Agreement in accordance with
Section 10, the Escrow Agent shall, upon written instructions delivered to it by
the Sellers' Representative, promptly liquidate all Permitted Investments in the
Escrow Account and deliver to the Sellers the then remaining cash and other
Escrowed Cash in the Escrow Account.
5
5. Sale or Other Release of Escrowed Shares. In the event a
Registration Statement covering Escrowed Shares is filed by the Purchaser
pursuant to Section 4 or Section 5 of the Registration Rights Agreement and is
declared effective by the SEC, the Purchaser shall as soon as practicable
thereafter notify the Escrow Agent and each Seller of such declaration of
effectiveness. The Purchaser, the Sellers and, if applicable, the underwriters
acting in respect of the registered offering shall agree to such arrangements as
are reasonably satisfactory to the Purchaser to ensure that all Escrowed Shares
to be sold under such Registration Statement are available to be sold under the
Registration Statement, and that the proceeds of the sale of such Escrowed
Shares shall be delivered directly to the Escrow Agent, who shall deposit and
hold such proceeds in the Escrow Account until the disbursement thereof in
accordance with this Agreement. In connection with the sale of Escrowed Shares
pursuant to a Registration Statement, and upon the joint written directions of
the Purchaser, on the one hand, and the Sellers on the other hand, the Escrow
Agent shall release from the Escrow Account, the number of shares specified in
such joint written directions to the party specified therein. On December 31,
1998, all Escrowed Shares shall be replaced with cash pursuant to the provisions
set forth in Section 2(a) of the Share Disposition Agreement.
6. Maintenance of the Escrow Account. (a) The Escrow Agent
shall continue to maintain the Escrow Account until the earlier of (i) the time
at which there shall be no assets in the Escrow Account and (ii) the termination
of this Agreement pursuant to Section 10 of this Agreement.
(b) Notwithstanding any other provision of this Agreement to
the contrary, at any time prior to the termination of this Agreement, the Escrow
Agent shall, if so instructed in a writing signed by the Purchaser and the
Sellers' Representative, acting on behalf of the Sellers, deliver from the
Escrow Account, as instructed, to any person or entity, as directed in such
writing, a specified amount of Escrowed Cash and a specified amount of Escrowed
Shares (to the extent the amount of the remaining Escrowed Cash and Escrowed
Shares is sufficient to do so).
7. Investment of Moneys in the Escrow Fund. The Escrow Agent
shall invest and reinvest moneys on deposit in the Escrow Account (including the
Escrowed Cash originally deposited therein at the Closing) in Permitted
Investments as instructed in writing from time to time by the Sellers.
"Permitted Investments" means: (a) readily marketable direct obligations of the
Government of the United States or any agency or instrumentality thereof or
readily marketable obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States, (b) insured certificates of
deposit of, or time deposits with, any commercial bank that is a member of the
Federal Reserve System and which issues (or the parent of which issues)
commercial paper rated as described in clause (c), is organized under the laws
of the United States or any State thereof and has combined capital and surplus
of at least $1 billion or (c) commercial paper in an aggregate amount of no more
than $1,000,000 per issuer outstanding at any time, issued by any corporation
organized under the
6
laws of any State of the United States, rated at least "Prime-1" (or the then
equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then
equivalent grade) by Standard & Poors, Inc. Notwithstanding the foregoing, the
Escrow Agent may act upon any contrary written investment instructions signed by
all of the Sellers and the Purchaser.
8. Assignment of Rights to the Escrow Account; Assignment of
Obligations; Successors. None of the Sellers may assign, transfer, pledge or
otherwise dispose of its or their rights to any portion of any Escrow Account.
This Agreement may not be assigned by operation of law or otherwise without the
express written consent of the other parties hereto (which consent may be
granted or withheld in the sole discretion of such other parties); provided,
however, that the Purchaser may assign this Agreement to an affiliate of the
Purchaser without the consent of the other parties; provided further, however,
that the Purchaser may also assign this Agreement to any person or entity who
purchases all of the outstanding shares of Purchaser Common Stock or all or
substantially all of the assets of the Purchaser, or to any person or entity
with or into which the Purchaser causes the Company to merge, if such other
person or entity has a creditworthiness that is reasonably satisfactory to the
Sellers and agrees in writing to assume (or assumes by operation of law) all of
the Purchaser's obligations under this Agreement. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
permitted assigns.
9. Escrow Agent. (a) Except as expressly contemplated by this
Agreement or by joint written instructions from the Purchaser and the Sellers'
Representative, acting on behalf of the Sellers, the Escrow Agent shall not
sell, transfer or otherwise dispose of in any manner all or any portion of the
Escrow Account, except pursuant to an order of a court of competent
jurisdiction. The Escrow Agent shall not be under any duty to give the Escrowed
Cash and Escrowed Shares held by it hereunder any greater degree of care than it
gives its own similar property and shall not be required to invest any funds
held hereunder except as directed in this Escrow Agreement.
(b) The duties and obligations of the Escrow Agent shall be
determined solely by this Agreement, and the Escrow Agent shall not be liable
except for the performance of such duties and obligations as are specifically
set forth in this Agreement. No implied duties or obligations shall be read into
this Agreement against the Escrow Agent. The Escrow Agent shall not be bound by
the provisions of any agreement among the other parties hereto except this
Escrow Agreement.
(c) In the performance of its duties hereunder, the Escrow
Agent shall be entitled to rely upon any document, instrument or signature
believed by it in good faith to be genuine and signed by any party hereto or an
authorized officer or agent thereof, and shall not be required to investigate
the truth or accuracy of any statement contained in any such document or
instrument. The Escrow Agent may assume that any person or entity purporting
7
to give any notice in accordance with the provisions of this Agreement has been
duly authorized to do so.
(d) The Escrow Agent shall not be liable for any error of
judgment, or any action taken, suffered or omitted to be taken, hereunder except
in the case of its gross negligence, bad faith or willful misconduct. The Escrow
Agent may consult with counsel of its own choice and shall have full and
complete authorization and protection for any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel.
(e) The Escrow Agent shall have no duty as to the collection
or protection of the Escrow Account or income thereon, nor as to the
preservation of any rights pertaining thereto, beyond the safe custody of any
such funds actually in its possession. The Escrow Agent makes no representation
as to the validity, value, genuineness or the collectability of any security or
other document or instrument held by or delivered to it.
(f) The Escrow Agent shall not incur any liability for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Escrow Agent
(including, but not limited to, any act or provision of any present or future
law or regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or telex or other wire or
communication facility).
(g) As compensation for its services to be rendered under this
Agreement, for each year or any portion thereof, the Escrow Agent shall receive
a fee in the amount specified in Schedule A to this Agreement or as shall be
agreed to in writing from time to time by the Escrow Agent, the Purchaser and
the Sellers' Representative and shall be reimbursed upon request for all
expenses, disbursements and advances, including reasonable fees and expenses of
outside counsel, if any, incurred or made by it in connection with the
preparation of this Agreement and the carrying out of its duties under this
Agreement. The Purchaser and the Sellers shall each be responsible for 50% of
all such fees and expenses.
(h) The Purchaser shall reimburse and indemnify the Escrow
Agent, and any predecessor Escrow Agent, for and hold it harmless against, any
loss, liability or expense, including, without limitation, taxes (other than
taxes based upon, determined by or measured by the income of the Escrow
Agreement) and reasonable attorneys' fees and expenses, incurred without gross
negligence, bad faith or willful misconduct on the part of the Escrow Agent
arising out of, or in connection with the acceptance of, or the performance of,
its duties and obligations under this Agreement. Without limiting the foregoing,
the Escrow Agent shall in no event be liable in connection with its investment
or reinvestment of any cash held by it hereunder in good faith, in accordance
with the terms hereof, including without limitation any liability for any delays
(not resulting from its gross negligence or willful misconduct) in the
8
investment or reinvestment of the Escrowed Cash, or any loss of interest
incident to any such delays.
(i) The Escrow Agent may at any time resign by giving 15
business days' prior written notice of resignation to the Sellers'
Representative and the Purchaser. The Purchaser and the Sellers, acting through
the Sellers' Representative, may at any time jointly remove the Escrow Agent by
giving 10 business days' written notice signed by each of them to the Escrow
Agent. If the Escrow Agent shall resign or be removed, a successor Escrow Agent,
which shall be a bank or trust company having its principal executive offices in
the United States of America and which shall be reasonably acceptable to the
Purchaser and the Sellers, shall be appointed by written instrument executed by
the Purchaser and the Sellers, and delivered to the Escrow Agent and to such
successor Escrow Agent and, thereupon, the resignation or removal of the
predecessor Escrow Agent shall become effective and such successor Escrow Agent,
without any further act, deed or conveyance, shall become vested with all right,
title and interest to all cash and property held hereunder of such predecessor
Escrow Agent, and such predecessor Escrow Agent shall, on the written request of
the Sellers, acting through the Sellers' Representative, or of the Purchaser or
of the successor Escrow Agent, execute and deliver to such successor Escrow
Agent all the right, title and interest hereunder in and to the Escrow Account
of such predecessor Escrow Agent and all other rights hereunder of such
predecessor Escrow Agent. If no successor Escrow Agent shall have been appointed
within 15 business days of (i) a notice of resignation by the Escrow Agent, or
(ii) removal by the Purchaser and Seller, the Escrow Agent shall have the right
to petition a court of competent jurisdiction for the appointment of a successor
Escrow Agent and the sole responsibility of the Escrow Agent shall thereafter be
to hold and invest in accordance with Section 7 hereof the Escrow Fund until the
earlier of its receipt of designation of a successor Escrow Agent, a joint
written instruction by the Purchaser and the Sellers, acting through the
Sellers' Representative, and termination of this Agreement in accordance with
its terms.
(j) The Escrow Agent does not have any interest in the
Escrowed Cash or Escrowed Shares deposited hereunder but is serving as escrow
holder only and having only possession thereof. The Sellers and the Purchaser
shall each pay or reimburse the Escrow Agent upon request for 50% of any
transfer taxes or other taxes relating to the Escrowed Cash or Escrowed Shares
incurred in connection herewith and shall indemnify and hold harmless the Escrow
Agent from any amounts that it is obligated to pay in the way of such taxes. Any
payments of income from this Escrow Account shall be subject to withholding
regulations then in force with respect to United States taxes. The parties
hereto will provide the escrow agent with appropriate W-9 forms for tax I.D.
number certifications, or W-8 forms for non-resident alien certifications. It is
understood that the Escrow Agent shall be responsible for income reporting only
with respect to income earned on investment of funds which are a part of the
Escrowed Cash or Escrowed Shares and is not responsible for any other reporting.
This paragraph and paragraph (g) shall survive notwithstanding any termination
of this Escrow Agreement or the resignation of the Escrow Agent.
9
(k) In the event that the Escrow Agent in good faith is in
doubt as to what action it should take hereunder, the Escrow Agent shall be
entitled to retain the Escrowed Cash and Escrowed Shares until the Escrow Agent
shall have received (i) a final non-appealable order of a court of competent
jurisdiction directing delivery of the Escrowed Cash and Escrowed Shares or (ii)
a written agreement executed by the Purchaser and the Sellers' Representative,
acting on behalf of the Sellers, directing delivery of the Escrowed Cash and
Escrowed Shares, in which event the Escrow Agent shall disburse the Escrowed
Cash and Escrowed Shares in accordance with such order or agreement. Any court
order shall be accompanied by a legal opinion by counsel for the presenting
party satisfactory to the Escrow Agent to the effect that said opinion is final
and non-appealable. The Escrow Agent shall act on such court order and legal
opinions without further question.
10. Termination. This Escrow Agreement shall terminate on the
later of: (a) the date on which there are no assets remaining in any Escrow
Account and (b) 10 business days following the date after the Distribution Date
on which all claims made in Purchaser's Certificates delivered to the Escrow
Agent prior to the Distribution Date, and all Losses specified in one or more
notices delivered to the Sellers' Representative and the Escrow Agent by the
Purchaser pursuant thereto that could give rise to a right of indemnification
under Article 11 of the Acquisition Agreement shall have been resolved.
11. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 11):
(a) if to the Sellers' Representative:
Patrick L. Ryan, as
Sellers' Representative
624 Tamarac Trail
Wadsworth, OH 44281
Telecopy: (330) 336-0228
10
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: Raymond O. Gietz, Esq.
(b) if to the Purchaser:
BE Aerospace, Inc.
1400 Corporate Center Way
Wellington, Florida 33414
Telecopy: (561) 791-4402
Attention: Chief Financial Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy: (212) 848-7179
Attention: Alfred J. Ross, Esq.
(c) if to the Escrow Agent, to:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, New York 10286
Telecopy: (212) 815-7181
Attention: Insurance Trust and Escrow Unit
12. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed and to be performed entirely within that State.
13. Amendments. This Agreement may not be amended or modified
except (a) by an instrument in writing signed by, or on behalf of, the Sellers'
Representative, acting on behalf of the Sellers, the Purchaser and the Escrow
Agent or (b) by a waiver in accordance with Section 14 of this Agreement.
11
14. Waiver. The Escrow Agent, the Purchaser and the Sellers'
Representative, acting on behalf of the Sellers, may (i) extend the time for the
performance of any obligation or other act of any of the other parties hereto or
(ii) together, waive compliance with any agreement or condition contained
herein. Any such extension or waiver shall be valid only if set forth in an
instrument in writing signed by the party or parties to be bound thereby. Any
waiver of any term or condition shall not be construed as a waiver of any
subsequent breach or a subsequent waiver of the same term or condition, or a
waiver of any other term or condition, of this Agreement. The failure of any
party to assert any of its rights hereunder shall not constitute a waiver of any
of such rights.
15. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions contemplated by this Agreement
be consummated as originally contemplated to the fullest extent possible.
16. Entire Agreement. This Agreement and the Acquisition
Agreement constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all prior agreements and undertakings,
both written and oral, among the parties hereto with respect to the subject
matter hereof.
17. No Third Party Beneficiaries; Assignment. This Agreement
is for the sole benefit of the parties hereto and their permitted assigns and
nothing herein, express or implied, is intended to or shall confer upon any
other person or entity any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
18. Further Action. Subject to the terms and conditions of
this Agreement, each party hereto shall use all reasonable efforts to take, or
cause to be taken, all appropriate action and do or cause to be done all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
No party hereto shall become a party to any agreement which by its terms
restricts its, his or her performance of its, his or her obligations under this
Agreement.
19. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
12
20. Representations and Warranties. Each of the Purchaser and
Seller hereby represents and warrants (a) that this Escrow Agreement has been
duly authorized, executed and delivered on its behalf and constitutes its legal,
valid and binding obligation and (b) that the execution, delivery and
performance of this Escrow Agreement by Depositor do not and will not violate
any applicable law or regulation.
21. Use of Name. Except as required by law, applicable
regulation or NASDAQ rule, no printed or other material in any language,
including prospectuses, notices, reports, and promotional material which
mentions "The Bank of New York" by name or the rights, powers, or duties of the
Escrow Agent under this Agreement shall be issued by any other parties hereto,
or on such party's behalf, without the prior written consent of Escrow Agent,
which consent shall not be unreasonably withheld.
22. Counterparts. This Agreement may be executed in one or
more counterparts, and by different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
when taken together shall constitute one and the same agreement.
13
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
---------------------------------
Oscar J. Mifsud
---------------------------------
Patrick L. Ryan
---------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By:
------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By:
------------------------------
Patrick L. Ryan, Trustee
DAVID B. SMITH TRUST - 1998
By:
------------------------------
David B. Smith, Trustee
BE AEROSPACE, INC.
By:
------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
------------------------------
Name:
Title:
SCHEDULE A
[Escrow Agent Fees]
EXHIBIT C
STANDBY LETTER OF CREDIT
The Chase Manhattan Bank
Global Trade Services Group
P.O. Box 44, Church Street Station Cable Address: CHAMANBANK New York
New York, NY 10008-0044
DATE: AUGUST 7, 1998
Irrevocable Stanby Letter
Of Credit Number P-374721
Applicant:
BE AEROSPACE
1400 Corporate Center Way
Wellington, Florida 33414
Beneficiaries:
Oscar J. Mifsud and Patrick L. Ryan and David B. Smith and
Oscar J. Misfud Trust-1998 Patrick L. Ryan Trust-1998 David B. Smith Trust-1998
541 Leeds Gate Lane 624 Tamarac Trail 520 West Point Drive
Wadsworth, OH 44281 Wadsworth, OH 44281 Akron, OH 44333
Attn: Oscar Mifsud Attn: Patrick L. Ryan Attn: David B. Smith
Telecopier: 330-335-3216 Telecopier: 330-336-0228 Telecopier: 330-665-5302
We hereby notify Oscar J. Mifsud, Oscar J. Misfud Trust-1998, Patrick L. Ryan,
Patrick L. Ryan Trust-1998 and David B. Smith, David B. Smith Trust-1998 that we
have issued our Irrevocable Standby Letter of Credit Number P-374721 in your
favor by order and for account of:
BE AEROSPACE
1400 Corporate Center Way
Wellington, Florida 33414
Up to an aggregate amount of One Hundred Twenty Million U.S.Dollars and no cents
($120,000,000.00)
Available by a single beneficiaries' draft at sight drawn on The Chase Manhattan
Bank, New York, New York 10041
ACCOMPANIED BY:
A signed certification by all of the beneficiaries that: (1) "The date is
December 31, 1998 and BE Aerospace, Inc., of 1400 Corporate Center Way,
Wellington, Florida 33414 has failed to pay the amounts owed to the
beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as
of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick
L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith Trust -
1998 and BE Aerospace and the amount of the draft accompanying this
certification is not in excess of the amount owed by BE Aerospace to the
beneficiaries thereunder" or (2) "BE Aerospace, Inc. of 1400 Corporate Center
Way, Wellington, Florida 33414 has filed a petition for reorganization or other
relief under the Federal Bankruptcy laws and the amount of the draft
accompanying this certification is not in excess of the amount owed by BE
Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition
Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud
Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith,
David B. Smith - 1998 and BE Aerospace.
The available amount hereunder shall be reduced by the amount which the
beneficiaries certify to us has been paid by BE Aerospace to the beneficiaries
pursuant to Section 2 of the Share Disposition Agreement dated as of August 7,
1998 among Oscar J. Mifsud, Oscar J. Mifsud - 1998, Patrick L. Ryan, Patrick L.
Ryan Trust - 1998, and David B. Smith, David B. Smith - 1998 and BE Aerospace.
Draft must be drawn and presented at this office at 55 Water Street, Trade
Services, Room 1708, New York, New York 10041 not later than January 19, 1999.
The draft drawn hereunder must be marked: "Drawn under The Chase Manhattan Bank,
New York Letter of Credit Number P-374721" and indicate the date hereof.
We hereby engage with the beneficiary that the draft drawn under and in
compliance with the terms of this credit will be duly honored.
This letter of credit shall be governed by the law of the State of New York, and
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision) International Chamber of Commerce Publication No. 500 (the
"UCP") and, in the event of any conflict between the law of the State of New
York and the UCP, the UCP shall control.
THE CHASE MANHATTAN BANK
By /s/
------------------------
Authorized Signatory
EXHIBIT D
STANDSTILL AND NON-COMPETE AGREEMENT
STANDSTILL AND NON-COMPETE AGREEMENT (the "Agreement"), dated as of August
7, 1998, by and between BE AEROSPACE, INC., a Delaware corporation ("BE
Aerospace"), on the one hand, and the other Persons set forth on the signature
pages hereto (collectively, the "Stockholders"), on the other hand.
W I T N E S S E T H:
WHEREAS, BE Aerospace, Oscar J. Mifsud, Patrick L. Ryan and David B. Smith
have entered into an Acquisition Agreement dated as of July 21, 1998 (the
"Acquisition Agreement"; capitalized terms used without definition herein having
the meanings ascribed thereto in the Acquisition Agreement);
WHEREAS, as a result of the consummation of the Acquisition Agreement, the
Stockholders will beneficially own approximately 14.7% of the issued and
outstanding BE Aerospace Common Stock; and
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements set forth herein, BE Aerospace and the
Stockholders hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
For purposes of this Agreement, the following terms have the following
meanings:
(a) "Affiliate" shall have the meaning set forth in Rule 12b-2 of
the Securities and Exchange Act of 1934, as amended (the "Exchange Act");
provided, however, that any corporation in which a Stockholder or any of its
Affiliates owns less than a majority of the securities entitled generally to
vote for the election of directors shall not be considered an Affiliate of such
Stockholder or such Affiliate unless such Stockholder or such Affiliate
otherwise controls such corporation.
(b) "Beneficial ownership" and "beneficially own" shall have the
meanings set forth in Rule 13d-3 under the Exchange Act.
(c) "Control" shall mean, with respect to a Person or a Group, (i)
beneficial ownership by such Person or Group of securities entitling it to
exercise in the aggregate more than 50 percent of the votes in any election of
directors or other governing body of the entity in question; or (ii) possession
by such Person or Group of the power, directly or indirectly, (x) to elect a
majority of the board of directors (or equivalent governing body) of the entity
in question or (y) in case of a non-corporate entity, to manage or govern the
business, operations or investments of any such non-corporate entity.
(d) "Group" shall have the meaning comprehended by Section 13(d)(3)
of the Exchange Act; provided that, solely for purposes of Section 2.1(a)(iv) of
this Agreement, the Stockholders shall not by themselves constitute a "Group."
(e) "Person" shall have the meaning set forth in Section 3(a)(9) of
the Exchange Act.
(f) "Schedule 13D Filer" means any Person or Group which, based on
its direct or indirect beneficial ownership of any Voting Securities, is, or
after the acquisition of such beneficial ownership would be, required to file a
statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the
Exchange Act, but shall not include any Schedule 13G Filer.
(g) "Schedule 13G Filer" means any Person or Group which, based on
its direct or indirect beneficial ownership of any Voting Securities, is, or
after the acquisition of such beneficial ownership would be, required to file a
statement on Schedule 13D with the SEC in accordance with Rule 13d-1 under the
Exchange Act, but which in lieu of such filing may instead file a short-form
statement on Schedule 13G in accordance with such Rule.
(h) "Standstill Percentage" means 14.8% of the Total Voting Power;
provided that in the event that the percentage of the Total Voting Power
represented by the shares of Voting Securities beneficially owned by the
Stockholders and their Affiliates from time to time is reduced, then the
Standstill Percentage shall be automatically reduced to the percentage of Total
Voting Power represented by shares of Voting Securities beneficially owned by
the Stockholders and their Affiliates from time to time; provided further, that
(x) following any such reduction in the Standstill Percentage, the Standstill
Percentage shall not thereafter be subject to any increase (other than as
provided for in the following clause (y)), and (y) if the percentage of Total
Voting Power represented by shares of Voting Securities
2
beneficially owned by the Stockholders and their Affiliates is increased as a
result of any BE Aerospace Action (as defined in Section 2.1(a)(i) of this
Agreement), the Standstill Percentage shall be automatically increased to
reflect such BE Aerospace Action.
(i) "Total Voting Power" means, at any time, the aggregate number of
votes which may be cast by holders of outstanding Voting Securities.
(j) "Transfer" means sell, transfer, assign, pledge, hypothecate,
give away or in any manner dispose of any Voting Securities.
(k) "Voting Securities" means the BE Aerospace Common Stock and any
other securities (including voting preferred stock) issued by BE Aerospace which
are entitled to vote generally for the election of directors of BE Aerospace,
whether currently outstanding or hereafter issued (other than securities having
such powers only upon the occurrence of a contingency).
ARTICLE II
STANDSTILL RESTRICTIONS; VOTING MATTERS
---------------------------------------
2.1 Standstill Restrictions. (a) During the term of this Agreement, each
of the Stockholders covenants and agrees that without the prior affirmative vote
of a majority of the board of directors of BE Aerospace at a meeting at which a
quorum is present, the Stockholders shall not, and shall not permit any of their
respective Affiliates to, directly or indirectly:
(i) acquire, propose to acquire (or publicly announce or
otherwise disclose an intention to propose to acquire) or offer to
acquire, by purchase or otherwise, any Voting Securities, if the effect of
such acquisition would be to increase the outstanding number of shares of
Voting Securities then beneficially owned by the Stockholders and their
Affiliates, in the aggregate, to an amount representing Total Voting Power
in excess of the Standstill Percentage; provided that this Section
2.1(a)(i) shall not be applicable, and no Stockholder shall be obligated
to dispose of Voting Securities, if the aggregate percentage of the Total
Voting Power represented by Voting Securities beneficially owned by the
Stockholders is increased as a result of corporate
3
action taken solely by BE Aerospace and not caused by any action taken by
any Stockholder or any Affiliate of any Stockholder ("BE Aerospace
Action");
(ii) propose (or publicly announce or otherwise disclose an
intention to propose), solicit, offer, seek to effect, negotiate with or
provide any confidential information relating to BE Aerospace or its
business to any other Person with respect to, any tender or exchange
offer, merger, consolidation, share exchange, business combination,
restructuring, recapitalization or similar transaction involving BE
Aerospace;
(iii) make, or in any way participate in, any "solicitation" of
"proxies" to vote (as such terms are defined in Rule 14a-1 under the
Exchange Act), solicit any consent with respect to the voting of any
Voting Securities or become a "participant" in any "election contest" (as
such terms are defined or used in Rule 14a-11 under the Exchange Act) with
respect to BE Aerospace;
(iv) except to the extent contemplated by the Registration Rights
Agreement, form, participate in or join any Person or Group with respect
to any Voting Securities (except an arrangement solely among any or all of
the Stockholders), or otherwise act in concert with any third Person
(other than any Stockholder) for the purpose of (x) acquiring any Voting
Securities or (y) holding or disposing of Voting Securities for any
purpose otherwise prohibited by this Section 2.1(a);
(v) deposit any Voting Securities into a voting trust or subject
any Voting Securities to any arrangement or agreement with respect to the
voting thereof (except for this Agreement and except for any such
arrangement solely among any or all of the Stockholders);
(vi) initiate, propose or otherwise solicit stockholders for the
approval of one or more stockholder proposals with respect to BE Aerospace
as described in Rule 14a-8 under the Exchange Act, or induce or attempt to
induce any other Person to initiate any stockholder proposal;
(vii) seek election to or seek to place a representative on the
Board of Directors, or seek the removal of any member of the Board of
Directors;
(viii) call or seek to have called any meeting of the stockholders
of BE Aerospace for any purpose otherwise prohibited by this Section
2.1(a);
4
(ix) take any other action to seek to control BE Aerospace;
(x) demand, request or propose to amend, waive or terminate the
provisions of this Section 2.1(a); or
(xi) agree to do any of the foregoing, or advise, assist,
encourage or persuade any third party to take any action with respect to
any of the foregoing.
(b) Each of the Stockholders agrees that it will notify BE Aerospace
promptly if any inquiries or proposals are received by, any information is
exchanged with respect to, or any negotiations or discussions are initiated or
continued with, any Stockholder regarding any matter described in Section 2.1(a)
hereof. The Stockholders and BE Aerospace shall mutually agree upon an
appropriate response to be made to any such proposals received by any
Stockholder.
(c) The Stockholders shall not be deemed to have breached Section
2.1(a)(i) of this Agreement if (i) the Stockholders or their Affiliates
inadvertently and in good faith acquire Voting Securities so as to cause the
Total Voting Power represented by the Voting Securities beneficially owned by
the Stockholders and their Affiliates to exceed the Standstill Percentage, and
(ii) the Stockholders as soon as practicable divest a sufficient number of
shares of Voting Securities beneficially owned by the Stockholders and their
Affiliates so as to result in the Total Voting Power represented by the Voting
Securities beneficially owned by the Stockholders and their Affiliates to be
equal to or less than the Standstill Percentage.
2.2 Voting. Until such time as the Stockholders no longer beneficially own
Voting Securities representing in the aggregate at least 5% of the Total Voting
Power, the Stockholders will take all such action as may be required so that all
Voting Securities owned by the Stockholders and their Affiliates, as a group,
are voted (in person or by proxy) for BE Aerospace's nominees to the Board of
Directors, and with respect to such other matters as are subject to a
stockholder vote, in accordance with the recommendation of the Board of
Directors. Each of the Stockholders shall be present, in person or by proxy, at
all duly held meetings of stockholders of BE Aerospace so that all Voting
Securities held by the Stockholders may be counted for the purposes of
determining the presence of a quorum at such meetings.
5
ARTICLE III
TRANSFERS
---------
3.1 Transfers of Voting Securities. None of the Stockholders shall,
directly or indirectly, Transfer any Voting Securities except:
(a) in accordance with the terms and provisions of the Share
Disposition Agreement; or
(b) pursuant to a merger or consolidation of BE Aerospace or
pursuant to a plan of liquidation of BE Aerospace, which has been approved by
the affirmative vote of a majority of the members of the Board of Directors then
in office.
ARTICLE IV
LEGENDS AND STOP TRANSFER ORDERS
--------------------------------
4.1 Legend. All certificates evidencing Voting Securities beneficially
owned by any of the Stockholders shall bear the following legend:
"The securities represented by this certificate are subject to the
restrictions on disposition and to the other provisions of a Standstill
and Non-Compete Agreement dated as of August 7, 1998 among BE Aerospace,
Inc. and the Stockholders named therein. Copies of such Agreement are on
file at the respective offices of such parties."
4.2 Stop Transfer Orders. The Stockholders each hereby consent to the
entry of stop transfer orders with the transfer agents of any such Voting
Securities against the transfer of such legended certificates representing such
Voting Securities except in compliance with this Agreement.
4.3 Removal or Modification of Legend. BE Aerospace agrees that upon any
Transfer of the securities represented by such certificates made in compliance
with the provisions of this Agreement, it will, upon the presentation to its
transfer agent of the certificates containing such legend, remove such legend
from the certificates being sold or registered.
6
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Representations and Warranties of the Stockholders. Each of the
Stockholders jointly and severally represent and warrant to BE Aerospace as
follows:
(a) Assuming that (i) the Stockholders Shares (as defined below) are
duly authorized, validly issued, fully paid and nonassessable, and, immediately
prior to their receipt by the Stockholders, are free and clear of all security
interests, liens, claims, proxies, charges, encumbrances and options of any
nature whatsoever created by any Person other than a Stockholder (other than
those created by this Agreement, the Registration Rights Agreement and the Share
Disposition Agreement), and (ii) the issuance of the Stockholders Shares to the
Stockholders is properly recorded in the stock ledger of BE Aerospace, then,
upon the issuance of the Stockholders Shares to the Stockholders pursuant to
Section 1.2 of the Acquisition Agreement, each of the Stockholders will be the
beneficial and record owner of BE Aerospace Common Shares in the respective
amounts set forth in Schedule I attached hereto (the "Stockholders Shares"),
free and clear of all security interests, liens, claims, proxies, charges,
encumbrances and options of any nature whatsoever, and there will be no
outstanding options, warrants or rights to purchase or acquire, or agreements
relating to, any of the Stockholders Shares (other than those created by this
Agreement, the Registration Rights Agreement and the Share Disposition
Agreement).
(b) Except for the Stockholders Shares, neither any of the
Stockholders, nor any of their Affiliates, owns beneficially or of record,
directly or indirectly, any Voting Securities or any options, warrants or rights
of any nature (including conversion and exchange rights) to acquire beneficial
ownership of any Voting Securities.
(c) Each of the Stockholders has full legal right, power and
authority to enter into and perform this Agreement. This Agreement has been duly
authorized, executed and delivered by each of the Stockholders. This Agreement
constitutes a legally valid and binding agreement of each of the Stockholders,
enforceable in accordance with its terms, except that such enforceability may be
subject to bankruptcy, insolvency, receivership, reorganization, moratorium or
other similar laws relating to creditors' rights now or hereafter in effect and
by general equitable principles.
7
(d) The execution and delivery of this Agreement by the Stockholders
does not conflict with or constitute a violation of or default under any
statute, law, regulation, order or decree applicable to any of the Stockholders,
or any contract, commitments, agreement, arrangement or restriction of any kind
to which any of the Stockholders are a party or by which any of the Stockholders
are bound, other than such violations as would not prevent or materially delay
the performance by such Stockholder of its obligations hereunder or otherwise
subject BE Aerospace to any claim or liability.
5.2 Representations and Warranties of BE Aerospace. BE Aerospace hereby
represents and warrants to the Stockholders as follows:
(a) BE Aerospace is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.
(b) BE Aerospace has full legal right, power and authority to enter
into and perform this Agreement and the execution and delivery of this Agreement
by BE Aerospace have been duly authorized by all necessary corporate action on
behalf of BE Aerospace. This Agreement constitutes a legally valid and binding
agreement of BE Aerospace, enforceable in accordance with its terms, except that
such enforceability may be subject to bankruptcy, insolvency, receivership,
reorganization, moratorium or other similar laws relating to creditors' rights
now or hereafter in effect, and by general equitable principles.
(c) Neither the execution and delivery of this Agreement nor the
consummation by BE Aerospace of the transactions contemplated hereby conflicts
with or constitutes a violation of or default under the Restated Certificate of
Incorporation or By-laws of BE Aerospace, any statute, law, regulation, order or
decree applicable to BE Aerospace, or any contract, commitment, agreement,
arrangement or restriction of any kind to which BE Aerospace is a party or by
which BE Aerospace is bound, other than such violations as would not prevent or
materially delay the performance by BE Aerospace of its obligations hereunder or
otherwise subject any Stockholder to any claim or liability.
8
ARTICLE VI
NON-COMPETITION COVENANT
------------------------
6.1 Protective Covenants.
(a) Confidentiality. Each Stockholder hereby acknowledges and agrees
that he possesses and will continue to possess information which has been
created, discovered or developed by or otherwise become known to him (including
information discovered or made available by any SMR Company (together, the "SMR
Companies") or by which property rights have been assigned or otherwise conveyed
to any SMR Company, which information has commercial value to one or more SMR
Companies, including, but not limited to, trade secrets, innovations, processes,
computer codes, data, know-how, improvements, discoveries, developments,
techniques, marketing plans, strategies, costs, customer and client lists, the
ownership structure of any SMR Company or any information such stockholder has
reason to know that any SMR Company would treat as confidential for any purpose,
whether or not developed by you (hereinafter referred to as "Confidential
Information"). Each Stockholder hereby agrees that he will keep confidential and
will not disclose, directly or indirectly, any such Confidential Information to
any third party, except as required by law or to fulfill his duties hereunder or
to his attorney or other advisors, whom he shall notify of this confidentiality
provision and who shall be similarly bound. None of the Stockholders shall
misuse, misappropriate or exploit such Confidential information in any way. The
parties hereto acknowledge and agree that Confidential Information shall not
include any knowledge or information conveyed to, known to or held by any such
Stockholder as a result of his employment or other activities prior to his
employment by any SMR Company or otherwise becomes publicly known other than as
a result of a breach by such shareholder of his obligations hereunder; provided
further that specific information shall not be deemed to be publicly known
merely because it is embraced in general disclosures in the public domain. In
addition, any combination of features shall not be deemed to be publicly known
merely because the individual features are in the public domain unless the
combination itself and its principle of operation are in the public domain.
(b) Restrictive Covenants. Each Stockholder hereby acknowledges that
because of his skills, his position with the SMR Companies and the Confidential
Information to which he had access or was provided on account of his
relationship with the SMR Companies, competition by him with any SMR Company
could damage the SMR Companies in a manner which cannot adequately be
compensated by
9
damages or an action at law. Each Stockholder also acknowledges that he has
entered into an Acquisition Agreement and that the covenants contained in this
Section 6.1 are material to the consummation of the Acquisition Agreement. In
view of such circumstances and because of the Confidential Information obtained
by or disclosed to each Stockholder, each Stockholder hereby covenants and
agrees to the following terms and conditions.
(i) Restrictions on Competitive Employment. During the period
beginning on the date hereof and ending on August 6, 2005, each
Stockholder shall not (as principal, agent, employee, consultant or
otherwise), directly or indirectly, without the prior written approval of
the Company, engage in activities for, or render services to any firm or
business anywhere in the world (A) that conducts a business or engages in
any activities conducted or engaged in by any SMR Company (or contemplated
by the business plan of any SMR Company) at the time of the closing of the
Acquisition Agreement, which business or activities are in direct or
indirect competition with any SMR Company or (B) that develops or offers
products or services substantially similar to those products or services
developed or offered by any SMR Company at the time of the closing of the
Acquisition Agreement (or then contemplated by the business plan of any
SMR Company) (the businesses in clauses (A) and (B) collectively,
"Competitive Businesses"); provided, however, that such Stockholder may
have an interest consisting of publicly traded securities constituting
less than one percent of any class of publicly traded securities in any
public company engaged in a Competitive Business so long as such
Stockholder is not employed by and does not consult with, or become a
director of or otherwise engage in any activities for, such company.
(ii) Restrictions on Solicitation. Beginning on the date hereof
and ending on August, 2005, no Stockholder shall solicit any customer or
prospective customer of any SMR Company, in either case with whom such
Stockholder has had contact during the twenty-four month period prior to
the transactions contemplated by the Acquisition Agreement for any
commercial pursuit that is in competition with any SMR Company, or induce,
or attempt to induce, any employees, agents or consultants of or to any
SMR Company to do anything from which such Stockholder is restricted by
reason of this Section 5.1(b)(ii), nor shall such Stockholder, directly or
indirectly, solicit any employee, consultant or agent to leave the employ
of any member of the Company Group.
10
(iii) Reasonable Limitations. Given the important nature of the
position each Stockholder previously held with the SMR Companies, the
nature of the business of the SMR Companies and the sensitive nature of
the Confidential Information and duties such Stockholder has with the SMR
Companies, the parties hereby acknowledge that the limitations, including,
but not limited to, the scope of activities prohibited, the geographic
area covered and the time limitation, are reasonable.
(iv) Remedies. In the event of a breach by any Stockholder of the
provisions of this Section 6.1, each SMR Company shall be entitled to a
temporary restraining order and an injunction restraining such Stockholder
from such breach. Nothing herein, however, shall be construed as
prohibiting any SMR Company from pursuing any other remedies available to
it for such actual or threatened breach, including, without limitation,
the recovery of damages. If it is determined that any Stockholder has
violated any of the covenants in this Section 6.1, the term of any such
covenant violated shall be automatically extended for the period of time
of the violation, either from the date on which such Stockholder ceases
such violation or from the date of the entry by a court of competent
jurisdiction of an order or judgment enforcing such covenants, whichever
period is later.
ARTICLE VII
FURTHER ASSURANCES
------------------
Each party shall execute and deliver such additional instruments and other
documents and shall take such further actions as may be necessary or appropriate
to effectuate, carry out and comply with all of their obligations under this
Agreement. If reasonably requested by BE Aerospace, each Stockholder agrees to
execute a letter to BE Aerospace confirming that the beneficial ownership of
Voting Securities by the Stockholders and their Affiliates does not represent in
the aggregate Total Voting Power in excess of the Standstill Percentage as of
the date of such letter.
11
ARTICLE VIII
TERMINATION
-----------
Unless earlier terminated by written agreement of the parties hereto, (a)
the provisions of Articles II - V shall terminate on the earlier of (i) December
31, 1998 and (ii) the date on which the Stockholders and their Affiliates
beneficially own Voting Securities representing in the aggregate less than 5% of
the Total Voting Power; and (b) the provisions of Article VI shall terminate on
August 6, 2005 or such later date provided for pursuant to Section 6.1(b)(iv).
Any termination of this Agreement as provided herein shall be without prejudice
to the rights of any party arising out of the breach by any other party of any
provisions of this Agreement which occurred prior to the termination.
ARTICLE IX
MISCELLANEOUS
-------------
9.1 Notices, Etc. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party when delivered personally
(by courier service or otherwise), when delivered by telecopy and confirmed by
return telecopy, or seven days after being mailed by first-class mail, postage
prepaid in each case to the applicable addresses set forth below:
If to BE Aerospace:
BE Aerospace, Inc.
1400 Corporate Center Way
Wellington, Florida 33414
Attention: Chief Financial Officer
Telecopier: (561) 791-3966
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
12
Attention: Alfred J. Ross, Esq.
Telecopier: (212) 848-7179
If to the Stockholders:
Oscar J. Mifsud and
Oscar J. Mifsud Trust -- 1998
541 Leeds Gate Lane
Wadsworth, OH 44281
Attention: Oscar J. Mifsud
Telecopier: (330) 335-3216
Patrick L. Ryan and
Patrick L. Ryan Trust -- 1998
624 Tamarac Trail
Wadsworth, OH 44281
Attention: Patrick L. Ryan
Telecopier: (330) 336-0228
David B. Smith and
David B. Smith Trust -- 1998
520 West Point Drive
Akron, OH 44333
Attention: David B. Smith
Telecopier: (330) 665-5302
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Raymond O. Gietz, Esq.
Telecopier: (212) 310-8007
or to such other address as such party shall have designated by notice so given
to each other party.
13
9.2 Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by the holders of a majority in number of the Stockholders
Shares and by BE Aerospace following approval thereof by a majority of the board
of directors of BE Aerospace.
9.3 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties and their respective Affiliates and their respective
successors and assigns, including without limitation in the case of any
corporate party hereto any corporate successor by merger or otherwise. Except as
otherwise provided herein, this Agreement shall not be assignable.
9.4 Entire Agreement. This Agreement embodies the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement and the Acquisition Agreement.
9.5 Specific Performance. The parties acknowledge that money damages are
not an adequate remedy for violations of this Agreement and that any party may,
in its sole discretion, apply to a court of competent jurisdiction for specific
performance or injunctive or such other relief as such court may deem just and
proper in order to enforce this Agreement or prevent any violation hereof and,
to the extent permitted by applicable law, each party waives any objection to
the imposition of such relief.
9.6 Remedies Cumulative. All rights, powers and remedies provided under
this Agreement or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by such party.
9.7 No Waiver. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with
14
the terms hereof, shall not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to demand such compliance.
9.8 No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of and shall not be enforceable by any Person who or which is not a
party hereto.
9.9 Jurisdiction. Each party hereby irrevocably submits to the exclusive
jurisdiction of the courts of the State of Ohio or of the United States for the
District of Ohio in any action, suit or proceeding arising in connection with
this Agreement, and agrees that any such action, suit or proceeding shall be
brought only in such court (and waives any objection based on forum non
conveniens or any other objection to venue therein); provided, however, that
such consent to jurisdiction is solely for the purpose referred to in this
Section 9.9 and shall not be deemed to be a general submission to the
jurisdiction of said court or in the State of Ohio other than for such purposes.
Each party hereto hereby waives any right to a trial by jury in connection with
any such action, suit or proceeding.
9.10 Governing Law. This Agreement and all disputes hereunder shall be
governed by and construed and enforced in accordance with the law of the State
of New York.
9.11 Name, Captions. The name assigned to this Agreement and the section
captions used herein are for convenience of reference only and shall not affect
the interpretation or construction hereof.
9.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies each signed by less than all, but together signed by all, the
parties hereto.
9.13 Expenses. In the event of a dispute concerning the terms or
enforcement of this Agreement, the prevailing party in any such dispute shall be
entitled to reimbursement of reasonable legal fees and disbursements from the
other party or parties to such dispute.
15
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
BE AEROSPACE, INC.
By: /s/Thomas P. McCaffrey
---------------------------------------
Name: Thomas P. McCaffrey
Title: Chief Financial Officer
STOCKHOLDERS
/s/Oscar J. Mifsud
---------------------------------------
Oscar J. Mifsud
/s/Patrick L. Ryan
---------------------------------------
Patrick L. Ryan
/s/David B. Smith
---------------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By: /s/Oscar J. Mifsud
---------------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By: /s/Patrick L. Ryan
---------------------------------------
Patrick L. Ryan, Trustee
16
DAVID B. SMITH TRUST - 1998
By: /s/David B. Smith
---------------------------------------
David B. Smith, Trustee
17
SCHEDULE I
SHARE OWNERSHIP
Name of Stockholder BE Aerospace Common Shares
------------------- --------------------------
18
EXHIBIT E
SHARE DISPOSITION AGREEMENT
This SHARE DISPOSITION AGREEMENT (this "Agreement") made and entered
into as of August 7, 1998, by and between the sellers signatory hereto (the
"Sellers"), and BE AEROSPACE, INC. a Delaware corporation (the "Purchaser");
W I T N E S S E T H:
WHEREAS, the Purchaser and the Sellers entered into an Acquisition
Agreement dated as of July 21, 1998 (the "Acquisition Agreement"; capitalized
terms used herein and not defined have the meanings assigned such terms
therein), pursuant to which the Purchaser has agreed to purchase from the
Sellers (i) all of the outstanding capital stock of SMR Aerospace, Inc., an Ohio
corporation, (ii) all of the limited and general partnership interests in SMR
Associates, an Ohio limited partnership and (iii) all of the membership
interests in SMR Developers, an Ohio limited liability company, in consideration
for (a) delivery to the Sellers on the date hereof of 4,000,000 shares (the "BE
Aerospace Shares") of the Purchaser's common stock, par value $.01 per share
("Purchaser Common Stock") and (b) $2,000,000 in cash;
WHEREAS, concurrently herewith, the Purchaser and the Sellers are
entering into a Registration and Transfer Agreement (the "Registration
Agreement") pursuant to which the Purchaser has agreed to file with the U.S.
Securities and Exchange Commission and maintain in effect for a specified period
a registration statement (the "Registration Statement") with respect to the BE
Aerospace Shares.
WHEREAS, the parties desire to enter into this Agreement in order to
grant to the Sellers and the Purchaser certain rights with respect to the BE
Aerospace Shares, subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Sellers
hereby agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following
capitalized terms shall have the following meanings:
"BE Aerospace Shares" means the 4,000,000 shares of Purchaser Common
Stock delivered by the Purchaser to the Sellers on the date hereof and any
securities issued with respect to the BE Aerospace Shares by reason of any
Stock Event.
"Business Day" means any day that is not a Saturday, a Sunday or
other day on which banks are required or authorized by law to be closed in
the City of New York.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, as in effect from time
to time.
"Guaranteed Value" means the Purchase Price minus the Cash
Payment.
"Net Proceeds" means (a) in the case of an underwritten sale of the
BE Aerospace Shares held by the Sellers, the gross proceeds received by
the Sellers in such sale of the BE Aerospace Shares net of underwriter's
discounts, commissions and other expenses paid by the Sellers (whether
incurred by the Sellers, the Purchaser, the underwriters or any advisors,
and including, without limitation, accounting and legal fees) in
connection with such sale and (b) in the case of any other sale of such
shares, the gross proceeds received by the Sellers net of selling
commissions paid in connection with such sale and all other expenses paid
by the Sellers (whether incurred by the Sellers, the Purchaser, the
placements agents or any advisors, and including, without limitation,
accounting and legal fees) in connection with such sale.
"Public Offering" means a fully underwritten public offering of the
BE Aerospace Shares and any other shares of Purchaser Common Stock,
conducted pursuant to an effective registration statement under the
Securities Act.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as amended
and the rules and regulations thereunder, as in effect from time to time.
2
"Stock Event" means any stock split, stock dividend, combination or
similar recapitalization of the Purchaser Common Stock after the date
hereof.
"Termination Date" means December 31, 1998.
Unless the context otherwise requires: (i) "or" is not exclusive;
and (ii) words in the singular include the plural and words in the plural
include the singular.
SECTION 2. Guaranteed Value for Shares Sold; Refund of Excess. (a)
If the aggregate Net Proceeds from the sale by the Sellers of BE Aerospace
Shares effected on or before the Termination Date are less than the Guaranteed
Value, then the Purchaser shall, on the Termination Date, pay to the Sellers by
wire transfer in immediately available federal funds the amount of such
deficiency and the Sellers shall transfer to the Company all BE Aerospace Shares
held by the Sellers on such date.
(b) If the aggregate Net Proceeds from the sale by the Sellers of BE
Aerospace Shares effected on or before the Termination Date are greater than the
Guaranteed Value, then the Sellers shall, on the date on which any proceeds in
excess of the Guaranteed Value are received by the Sellers, pay to the Company
by wire transfer of immediately available federal funds equal to the amount of
such excess and transfer to the Company all BE Aerospace Shares held by the
Sellers on such date.
SECTION 3. Disposition Procedures.
(a) From the date hereof until the Termination Date, the Sellers
agree to sell the BE Aerospace Shares on such terms and conditions (and
only on such terms and conditions), and at such times and utilizing such
underwriters and brokers, as shall be directed and approved by the
Purchaser in a written notice (a "Sale Notice") delivered to each Seller
in accordance with Section 5. The Sellers agree not to sell any BE
Aerospace Shares prior to the Termination Date other than pursuant to a
Sale Notice.
(b) Each Sale Notice (i) shall specify the terms upon which a sale
is to be made, including price (which may be a range), date, and method of
sale (underwritten offering, broker or private sale) and (ii) shall be
delivered to each Seller or to the Escrow Agent (as applicable) no later
than 12:00 Noon, one Business Day prior to the date of the proposed sale.
3
(c) The Purchaser shall have no obligation under Section 2 with
respect to any sale of BE Aerospace Shares (i) to any Affiliate of any
Seller, or (ii) in connection with any transaction in violation of clause
(a) of this Section 3.
SECTION 4. Security for the Purchaser's Obligations Under this
Agreement. The Purchaser's obligations to the Sellers under this Agreement shall
be secured by an irrevocable stand-by letter of credit from The Chase Manhattan
Bank in the form attached hereto as Exhibit A (the "Letter of Credit"), in favor
of the Sellers. From time to time after the date hereof, as the Purchaser's
obligations to be secured by the Letter of Credit are reduced due to the receipt
by the Sellers of the Net Proceeds of sales of BE Aerospace Shares, the
available amount of the Letter of Credit shall be reduced by an amount equal to
the Net Proceeds received by the Sellers in such sales.
SECTION 5. Miscellaneous. (a) Notices. All notices, requests,
claims, demands and other communications hereunder shall be in writing and shall
be given or made (and shall be deemed to have been duly given or made upon
receipt) by delivery in person, by courier service, by cable, by telecopy, by
telegram, by telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice given in
accordance with this Section 5):
(i) if to the Sellers:
Oscar J. Mifsud and
Oscar J. Mifsud Trust -- 1998
541 Leeds Gate Lane
Wadsworth, OH 44281
Attention: Oscar J. Mifsud
Telecopier: (330) 335-3216
Patrick L. Ryan and
Patrick L. Ryan Trust -- 1998
624 Tamarac Trail
Wadsworth, OH 44281
Attention: Patrick L. Ryan
Telecopier: (330) 336-0228
4
David B. Smith and
David B. Smith Trust -- 1998
520 West Point Drive
Akron, OH 44333
Attention: David B. Smith
Telecopier: (330) 336-5302
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Telecopier: (212) 310-8007
Attention: Raymond O. Gietz, Esq.
(ii) if to the Purchaser:
BE Aerospace, Inc.
1400 Corporate Center Way
Wellington, Florida 33414
Attention: Chief Financial Officer
Telecopier: (561) 791-3966
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopier: (212) 848-7179
Attention: Alfred J. Ross, Esq.
(b) Successors and Assigns. This Agreement is solely for the benefit
of, and binding upon, the parties and their respective successors. Nothing
herein shall be construed to provide any rights to any other entity or
individual. Neither this Agreement nor any of the rights or obligations
hereunder may be assigned by any party.
5
(c) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Titles. The titles, captions or headings of the Sections herein
are for convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
(e) Governing Law. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of New York.
(f) Invalidity. In the event that any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent permitted by
law, such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement.
(g) Entire Agreement; Modifications and Waivers. This Agreement
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and supersedes agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first written above.
BE AEROSPACE, INC.
By: /s/Thomas P. McCaffrey
------------------------------------
Name: Thomas P. McCaffrey
Title: Chief Financial Officer
THE SELLERS
/s/Oscar J. Mifsud
------------------------------------
Oscar J. Mifsud
/s/Patrick L. Ryan
------------------------------------
Patrick L. Ryan
/s/David B. Smith
------------------------------------
David B. Smith
OSCAR J. MIFSUD TRUST - 1998
By: /s/Oscar J. Mifsud
------------------------------------
Oscar J. Mifsud, Trustee
PATRICK L. RYAN TRUST - 1998
By: /s/Patrick L. Ryan
------------------------------------
Patrick L. Ryan, Trustee
7
DAVID B. SMITH TRUST - 1998
By: /s/David B. Smith
------------------------------------
David B. Smith, Trustee
8
EXHIBIT A
FORM OF IRREVOCABLE
LETTER OF CREDIT
9
EXHIBIT A
STANDBY LETTER OF CREDIT
The Chase Manhattan Bank
Global Trade Services Group
P.O. Box 44, Church Street Station Cable Address: CHAMANBANK New York
New York, NY 10008-0044
DATE: AUGUST 7, 1998
Irrevocable Stanby Letter
Of Credit Number P-374721
Applicant:
BE AEROSPACE
1400 Corporate Center Way
Wellington, Florida 33414
Beneficiaries:
Oscar J. Mifsud and Patrick L. Ryan and David B. Smith and
Oscar J. Misfud Trust-1998 Patrick L. Ryan Trust-1998 David B. Smith Trust-1998
541 Leeds Gate Lane 624 Tamarac Trail 520 West Point Drive
Wadsworth, OH 44281 Wadsworth, OH 44281 Akron, OH 44333
Attn: Oscar Mifsud Attn: Patrick L. Ryan Attn: David B. Smith
Telecopier: 330-335-3216 Telecopier: 330-336-0228 Telecopier: 330-665-5302
We hereby notify Oscar J. Mifsud, Oscar J. Misfud Trust-1998, Patrick L. Ryan,
Patrick L. Ryan Trust-1998 and David B. Smith, David B. Smith Trust-1998 that we
have issued our Irrevocable Standby Letter of Credit Number P-374721 in your
favor by order and for account of:
BE AEROSPACE
1400 Corporate Center Way
Wellington, Florida 33414
Up to an aggregate amount of One Hundred Twenty Million U.S.Dollars and no cents
($120,000,000.00)
Available by a single beneficiaries' draft at sight drawn on The Chase Manhattan
Bank, New York, New York 10041
ACCOMPANIED BY:
A signed certification by all of the beneficiaries that: (1) "The date is
December 31, 1998 and BE Aerospace, Inc., of 1400 Corporate Center Way,
Wellington, Florida 33414 has failed to pay the amounts owed to the
beneficiaries pursuant to Section 2 of the Share Disposition Agreement dated as
of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud Trust - 1998, Patrick
L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith, David B. Smith Trust -
1998 and BE Aerospace and the amount of the draft accompanying this
certification is not in excess of the amount owed by BE Aerospace to the
beneficiaries thereunder" or (2) "BE Aerospace, Inc. of 1400 Corporate Center
Way, Wellington, Florida 33414 has filed a petition for reorganization or other
relief under the Federal Bankruptcy laws and the amount of the draft
accompanying this certification is not in excess of the amount owed by BE
Aerospace to the beneficiaries pursuant to Section 2 of the Share Disposition
Agreement dated as of August 7, 1998 among Oscar J. Mifsud, Oscar J. Mifsud
Trust - 1998, Patrick L. Ryan, Patrick L. Ryan Trust - 1998, David B. Smith,
David B. Smith - 1998 and BE Aerospace.
The available amount hereunder shall be reduced by the amount which the
beneficiaries certify to us has been paid by BE Aerospace to the beneficiaries
pursuant to Section 2 of the Share Disposition Agreement dated as of August 7,
1998 among Oscar J. Mifsud, Oscar J. Mifsud - 1998, Patrick L. Ryan, Patrick L.
Ryan Trust - 1998, and David B. Smith, David B. Smith - 1998 and BE Aerospace.
Draft must be drawn and presented at this office at 55 Water Street, Trade
Services, Room 1708, New York, New York 10041 not later than January 19, 1999.
The draft drawn hereunder must be marked: "Drawn under The Chase Manhattan Bank,
New York Letter of Credit Number P-374721" and indicate the date hereof.
We hereby engage with the beneficiary that the draft drawn under and in
compliance with the terms of this credit will be duly honored.
This letter of credit shall be governed by the law of the State of New York, and
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision) International Chamber of Commerce Publication No. 500 (the
"UCP") and, in the event of any conflict betweent he las of the State of New
York and the UCP, the UCP shall control.
THE CHASE MANHATTAN BANK
By /s/
------------------------
Authorized Signatory