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EXHIBIT 2.2
COMBINATION AGREEMENT
This COMBINATION AGREEMENT (this Agreement), dated as of __________
___, 1996, by and among Service Experts, Inc., a Delaware corporation (SEI),
and ________________________________, a ______________ corporation (the
Company).
W I T N E S S E T H :
WHEREAS, the Company operates a heating, ventilating and air
conditioning (HVAC) service and replacement business;
WHEREAS, the Boards of Directors of SEI and the Company each have
determined that a business combination (the Combination) between SEI and the
Company is in the best interests of their respective companies and shareholders
and presents an opportunity for their respective companies to achieve long-term
strategic and financial benefits, and, accordingly, have agreed to effect the
transaction provided for herein upon the terms and subject to the conditions
set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
Combination provided for herein shall qualify as a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
Code); and
WHEREAS, SEI and the Company desire to make certain representations,
warranties and agreements in connection with the Combination.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Transfer of Shares. In accordance with the terms
and conditions set forth in this Agreement, the Company will cause the holders
(the Shareholders) of all of the issued and outstanding shares of Common Stock,
$_____ par value per share, of the Company (the Shares) to transfer, convey,
assign and deliver all of the Shares, free and clear of all liens, encumbrances
and claims whatsoever, to SEI in exchange for shares of Common Stock, $.01 par
value per share, of SEI (the SEI Common Stock).
Section 2. Purchase Price; Exchange of Certificates.
(a) Payment of Purchase Price.
(i) The purchase price (the Purchase
Price) for the Shares shall be $_____________. SEI shall acquire all
of the Shares issued and outstanding immediately prior to the
effective time of the Combination contemplated by this Agreement (the
Effective Time) in exchange for that number of shares of SEI Common
Stock which is equal to the quotient of (i) the Purchase Price,
subject to the adjustments
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found in Section 2(c) below, divided by (ii) $_______.
(ii) The Purchase Price shall be
allocated among the Shareholders as set forth on Schedule 2(a)(ii)
attached hereto.
(iii) An aggregate of 10% of the shares of
SEI Common Stock to be issued pursuant to this Section 2(a) shall be
held in escrow pursuant to the terms and conditions of the escrow
agreement attached hereto as Schedule 2(a)(iii) (the Escrow
Agreement).
(iv) No fractional shares of SEI Common
Stock shall be issued pursuant hereto. In lieu of the issuance of any
fractional share of SEI Common Stock, cash adjustments will be paid to
holders in respect of any fractional share of SEI Common Stock that
would otherwise be issuable, and the amount of such cash adjustment
shall be equal to such fractional proportion of the Average Price of a
share of SEI Common Stock. The Average Price of a share of SEI Common
Stock shall be the average of the closing sales prices thereof as
quoted on The Nasdaq Stock Market's National Market (the Nasdaq
National Market) (as reported by The Wall Street Journal or, if not
reported thereby, by another authoritative source) over the ten (10)
business days immediately preceding the Closing Date.
(b) Adjustment of Shares of Stock. In the event
that, subsequent to the date of this Agreement but prior to the Effective Time,
the outstanding shares of SEI Common Stock shall have been changed into a
different number of shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, split,
combination, exchange, recapitalization or other similar transaction, the
number of shares of SEI Common Stock to be delivered pursuant to this Agreement
shall be appropriately adjusted.
(c) Pre-Closing Adjustments to Purchase Price. As
promptly as practicable after the date hereof, the parties shall make initial
adjustments to the Purchase Price (the Pre-Closing Adjustments) based on the
differences between (i) the Company's net income for the 12 month period ended
_____________, 1996 (the Valuation Period), as presented in the Company's
financial statements for such period, with such adjustments as are set forth on
Schedule 2(c) attached hereto, and (ii) the Company's net income for the
Valuation Period, as presented in the Final Valuation Statement with such
adjustments as are deemed appropriate by SEI's independent certified public
accountants. SEI will cause a restated statement of income for the Valuation
Period (the Final Valuation Statement) to be prepared utilizing any
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adjustments identified as a result of the audit and/or review of the financial
statements of the Company by SEI's independent certified public accountants.
SEI shall deliver a schedule to the Shareholders detailing any Pre-Closing
Adjustments and describing in detail the differences between the Purchase
Price, as adjusted, and the amount set forth as the Purchase Price in this
Agreement. Such schedule shall be delivered to the Shareholders with a copy of
the Final Valuation Statement. The Final Valuation Statement shall be prepared
in accordance with generally accepted accounting principles.
(d) Post Closing Adjustments to Purchase Price.
(i) Promptly following the Closing Date,
SEI will cause to be prepared by its independent certified public
accountants a balance sheet of the Company as of the close of business
on the Closing Date (the Closing Balance Sheet). SEI shall furnish to
the Shareholders the Closing Balance Sheet within forty-five (45) days
after the Closing Date.
(ii) Subject to the provisions of Section
2(d)(iii) below, within ninety (90) days after the Closing Date (or as
soon thereafter as possible), the parties shall make final adjustments
to the Purchase Price (the Post Closing Adjustments) based on the
following:
(A) In the event the Company's
shareholders' equity (as presented in the Company's Closing
Balance Sheet) as a percentage of net sales (as presented in
the Company's Final Valuation Statement) is less than ten
percent (10%), the Purchase Price will be reduced by an amount
equal to the capital contribution required to result in
shareholders' equity as a percentage of net sales equaling ten
percent (10%).
(B) In the event the Company's
shareholders' equity (as presented in the Company's Closing
Balance Sheet) as a percentage of net sales (as presented in
the Company's Final Valuation Statement) is greater than ten
percent (10%), the Purchase Price will be increased by an
amount equal to the distribution required to result in
shareholders' equity as a percentage of net sales equaling ten
percent (10%). Any such increase in Purchase Price shall be
offset by the reduction in Purchase Price, if any, set forth
in subparagraph (D) below.
(C) In the event a Shareholder is
indebted to the Company, the Purchase Price payable to such
Shareholder will be reduced by an amount equal to the
indebtedness owing to the Company at the time of the Closing.
Any such reduction shall first be applied to the cash portion
of the Purchase Price and then to the shares of the SEI Common
Stock.
(D) In the event the Company's
Closing Balance Sheet includes any indebtedness, other than
indebtedness incurred in connection with
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the purchase of fixed assets subsequent to the Valuation
Period, the Purchase Price will be reduced by an amount equal
to the indebtedness outstanding on the Closing Date. Any such
reduction shall first be applied to the cash portion of the
Purchase Price and then to the shares of the SEI Common Stock.
(E) SEI shall deliver a schedule to
the Shareholders detailing any Post Closing Adjustments and
detailing the differences between the Purchase Price, as
adjusted, and the amount paid as the Purchase Price on the
Closing Date. Such schedule shall be delivered to the
Shareholders with a copy of the Closing Balance Sheet.
(iii) Should the Shareholders dispute the
Post Closing Adjustments proposed by SEI or the accuracy of the
Closing Balance Sheet, they shall promptly (and in no event later than
twenty (20) days after receipt of the Closing Balance Sheet and the
required schedule of Post Closing Adjustments) advise SEI in writing.
If after thirty (30) days after delivery of the Closing Balance Sheet,
SEI and the Shareholders are unable to agree upon the amount of the
Post Closing Adjustments, the Shareholders and SEI shall engage any
Big Six certified public accounting firm not under contract with
either the Company or SEI (the Accountants) to review the Closing
Balance Sheet and the proposed Post Closing Adjustments and determine
the amount thereof, such determination to be made as soon as
practicable. In making such review and determination, the Accountants
shall utilize the terms and provisions of this Agreement including,
without limitation, the provisions of Section 2(d)(v) hereof. The
decision of the Accountants shall be binding on both the Shareholders
and SEI. Each of SEI and the Shareholders shall pay one-half the
reasonable expenses of engagement of the Accountants.
(iv) Within thirty (30) days of the
Shareholders' receipt of the Closing Balance Sheet and the required
schedule of Post Closing Adjustments (or, if the Shareholders dispute
the Post Closing Adjustments, within ten (10) days of the resolution
or determination of the adjustments in accordance with Section
2(d)(iii) above), either (A) the Shareholders shall pay SEI in cash or
in the form of shares of SEI Common Stock (based on a per share
price of $_____) the amount by which the Purchase Price paid on the
Closing Date exceeds the Purchase Price, as adjusted, or (B) SEI shall
pay the Company in cash or in the form of shares of SEI Common Stock
(based on a per share price of $_____) the amount by which the
Purchase Price paid on the Closing Date is less than the Purchase
Price, as adjusted.
(v) The Closing Balance Sheet shall be
prepared in accordance with generally accepted accounting principles.
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Section 3. The Closing. The closing of the transactions
contemplated by this Agreement (the Closing) shall take place, following
satisfaction of all of the conditions set forth in Sections 8, 9 and 10 hereof,
or the waiver thereof (the Closing Date), at the offices of Waller Lansden
Dortch & Davis, A Professional Limited Liability Company, in Nashville,
Tennessee, or at such other location as the parties shall mutually agree.
Section 4. Representations and Warranties as to the
Shareholders. The Company represents and warrants to SEI as follows as of the
date hereof and also as of the Closing Date:
(a) Title to the Shares. The Company represents
that each Shareholder has and will have on the Closing Date good and
marketable title to the Shares with full right and authority to
transfer the Shares hereunder, and on transfer of the Shares, SEI will
receive good and marketable title to the Shares, free and clear of all
liens, encumbrances and claims whatsoever. Each Shareholder owns the
number of Shares set forth opposite its respective name on Schedule
4(a) attached hereto, which Shares collectively represent all of the
outstanding capital stock of the Company.
(b) Organization, Authority and Capacity. The
Company represents that if a Shareholder is a natural person, such
Shareholder has the full authority and capacity necessary to execute,
deliver and perform his or her obligations under all agreements,
instruments and documents to be executed and delivered in connection
with the transactions contemplated hereby (the Transaction Documents)
to be executed and delivered by such Shareholder. If a Shareholder is
not a natural person, (i) such Shareholder is duly organized, validly
existing and in good standing under the laws of its state of
organization and has the full corporate power and authority necessary
to execute, deliver and perform its obligations under the Transaction
Documents to be executed and delivered by such Shareholder, and (ii)
such Shareholder is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified
or in good standing could have a material adverse effect on such
Shareholder's ability to perform its obligations under the Transaction
Documents to be executed and delivered by such Shareholder.
(c) Authorization and Validity. The Company
represents that if a Shareholder is a natural person, such Shareholder
has the legal capacity required for executing, delivering and
performing the Transaction Documents to be executed and delivered by
such Shareholder. If a Shareholder is married and such Shareholder's
interest in the Company constitutes community property, the
Transaction Documents to be executed and delivered by such
Shareholder's spouse have been or will be, as the case may be, duly
executed and delivered by such Shareholder's spouse and constitute or
will constitute the legal, valid and binding obligations of such
Shareholder's spouse, enforceable in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, fraudulent
conveyance or other laws affecting creditors' rights generally, or as
may be modified by a court of equity. If a Shareholder is not a
natural person, (i) the execution, delivery and performance of the
Transaction Documents to be
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executed and delivered by such Shareholder have been duly authorized
by all necessary action on the part of such Shareholder, and (ii) the
Transaction Documents to be executed and delivered by such Shareholder
have been or will be, as the case may be, duly executed and delivered
by such Shareholder and constitute or will constitute the legal, valid
and binding obligations of such Shareholder, enforceable in accordance
with their respective terms, except as may be limited by bankruptcy,
insolvency, fraudulent conveyance or other laws affecting creditors'
rights generally, or as may be modified by a court of equity.
(d) Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance by each Shareholder
of the Transaction Documents to be executed and delivered by such
Shareholder (i) do not require the consent of or notice to any
governmental or regulatory authority or any other third party; (ii) if
a Shareholder is not a natural person, will not conflict with any
organizational document of such Shareholder; (iii) will not conflict
with or result in a violation of any law, ordinance, regulation,
ruling, judgment, order or injunction of any court or governmental
instrumentality to which such Shareholder is subject or by which such
Shareholder is bound; (iv) will not conflict with, constitute grounds
for termination of, result in a breach of, constitute a default under,
require any notice under, or accelerate or permit the acceleration of
any performance required by the terms of any agreement, instrument,
license or permit material to the Combination; and (v) will not create
any encumbrance or restriction upon the Shares.
(e) Interested Transaction. The Company
represents that, except as set forth on Schedule 4(e), no Shareholder
is a party to any contract, loan or other transaction with the Company
and no Shareholder has any direct or indirect interest in or
affiliation with any party to any such contract, loan or other
transaction. Except as set forth on Schedule 4(e), no Shareholder is
an employee, consultant, partner, principal, director or owner of, and
no Shareholder has any other direct or indirect interest in or
affiliation with, any person or business entity that is engaged in a
business that competes with or is similar to the business of the
Company.
(f) Access to Information. The Company represents
that each Shareholder has had access during the course of this
transaction to such information relating to SEI as he has desired, has
had the opportunity to ask questions of and receive answers from SEI
and its representatives concerning the terms and conditions of the
Combination and to obtain such additional information about the
business and financial condition of SEI as such Shareholder or his
representative has requested (to the extent SEI possessed such
information or could acquire it without unreasonable effort or
expense).
Section 5. Representations and Warranties of the Company. The
Company represents and warrants to SEI as follows as of the date hereof and
also as of the Closing Date:
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(a) Corporate Organization; Governing Documents
of the Company.
(i) The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
state of incorporation. The Company has all requisite corporate power
and authority to own or lease all of its properties or assets and
holds all licenses, permits and other required authorizations from
governmental authorities necessary to conduct its business as it is
now being conducted. The Company is duly qualified to do business and
is in good standing in the jurisdictions set forth in Schedule 5(a),
which includes every jurisdiction in which the failure to be so
qualified or in good standing would have a material adverse effect on
(A) the Company's ability to perform its obligations under this
Agreement and all accompanying documents to be executed and delivered
by the Company in connection with the business combination (the
Transaction Documents) or (B) the assets, results of operations or
prospects of the Company.
(ii) A copy of the Company's Articles of
Incorporation and Bylaws, as amended to the date hereof, the books of
account, minute books, stock record books and other records of the
Company, all of which have been made available to SEI, are complete
and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal
controls. The minute books of the Company contain accurate and
complete records of all meetings of, and corporate action taken by,
the Shareholders, the Board of Directors and committees of the Board
of Directors of the Company, and no meeting of any such Shareholders,
Board of Directors or committee has been held for which minutes have
not been prepared and are not contained in such minute books.
(b) Capitalization.
(i) The authorized capital stock of the
Company consists of ________ shares of Common Stock, ________ shares
of which are issued and outstanding as of the date hereof and
constitute the Shares. There are no other classes of securities of the
Company outstanding. All of the Shares are listed and held of record
as indicated on Schedule 5(b) and have been duly authorized and
validly issued and are fully paid and nonassessable. There are no
contracts relating to the issuance, sale, transfer or registration of
the Shares or any other securities of the Company. There are no
options, warrants, preemptive rights or other rights to purchase the
Shares or any other securities of the Company. None of the Shares or
other securities of the Company were issued in violation of the
Securities Act or preemptive rights of any past or present holder of
the Shares. There has been no transaction or action taken with respect
to the Shares in contemplation of the Combination that would prevent
the Company from accounting for the Combination as a reorganization
within the meaning of Section 368 of the Code.
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(ii) There is no plan or intention by any
of the Shareholders who own one percent (1%) or more of the Shares,
and to the best knowledge of management of the Company, there is no
plan or intention on the part of the remaining Shareholders to sell,
exchange or otherwise dispose of any of the shares of SEI Common Stock
to be received by them in the Combination.
(c) Authorization and Validity. The Company has
full corporate power and authority to execute and deliver this Agreement and,
subject to the approval of the Shareholders, to consummate the transactions
contemplated hereby. The Board of Directors of the Company has duly and validly
approved this Agreement and the transactions contemplated hereby, has
authorized the execution and delivery of this Agreement, has directed that this
Agreement and the transactions contemplated hereby be submitted to the
Shareholders for approval at a meeting of such Shareholders and, except for the
adoption of this Agreement by the Shareholders, no other corporate proceedings
on the part of the Company are necessary to consummate the transactions
contemplated hereby. This Agreement, when executed, will constitute the legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) No Defaults; Absence of Conflicts. The
Company is not in default under, nor has any event occurred which, with the
lapse of time or action by a third party, could result in a default under, any
outstanding indenture, mortgage, contract or agreement to which the Company is
a party. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will not (i)
violate any provision of, or result in the breach of, or constitute a default
under, or conflict with, (A) any terms or provisions of the Articles of
Incorporation or Bylaws of the Company or any resolution of the Company's Board
of Directors, (B) any law the violation of which would result in a material
liability to the Company, or (C) any order, writ, injunction or decree of any
court, governmental agency or arbitration tribunal; (ii) constitute a violation
of or a default under, or a conflict with, any term or provision of any
contract, commitment, indenture, lease or other agreement, or any other
restriction of any kind to which the Company is a party or by which the Company
is bound; (iii) cause, or give any party grounds to cause (with or without
notice, the passage of time or both) the maturity of any liability or
obligation of the Company to be accelerated, or increase any such liability or
obligation; or (iv) create any lien, encumbrance or restriction upon any of the
assets or properties of the Company.
(e) Subsidiaries, Investments and Predecessors.
Except as set forth on Schedule 5(e), the Company has not owned and does not
currently own, directly or indirectly, beneficially or equitably, any capital
stock or other equity, ownership or proprietary interest in any corporation,
partnership, limited liability company, association, trust, joint venture or
other entity. Set forth on Schedule 5(e) is a listing of all predecessor
companies of the Company, including the names of any entities from whom the
Company previously acquired material assets,
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and any other entity of which the Company has been a subsidiary or division.
Except as listed on Schedule 5(e), the Company has not sold or disposed of, by
way of asset sale, stock sale, spin-off or otherwise, any material assets or
business of the Company.
(f) Financial Statements. The financial
statements of the Company for the fiscal years ended December 31, 1993, 1994
and 1995 and the audit report thereon of _______________, independent auditors,
copies of which are attached hereto as Schedule 5(f)(i), are true, correct and
complete, have been prepared in accordance with generally accepted accounting
principles, and fairly and accurately present the financial and business
condition of the Company as of the dates thereof and the results of the
operations of the Company for the periods covered thereby. The financial
statements set forth in Schedule 5(f)(i) are collectively, together with the
notes thereto, referred to as the Financial Statements. Except as reflected on
Schedule 5(f)(ii), the Financial Statements accurately reflect or adequately
provide for all claims against, and all debts and liabilities of, the Company,
fixed or contingent, existing at the dates thereof.
(g) Accounts Receivable and Payable. The accounts
receivable reflected on the Financial Statements arose in the ordinary course
of business and, except as reserved against on the Financial Statements, are
collectible in the ordinary course of business and consistent with past
practices, free of any claims, rights or defenses of any account debtor. Except
as set forth on Schedule 5(g), no accounts payable of the Company are, at this
date, over 45 days old and no accounts payable of the Company will be over 45
days old at the Closing Date.
(h) Absence of Certain Changes. Except as
disclosed on Schedule 5(h) or as reflected on the Financial Statements, the
Company has not, since December 31, 1995, except in the ordinary course of
business consistent with past practice:
(i) changed the Company's authorized or
issued capital stock; granted any stock option or right to purchase
shares of capital stock of the Company; issued any security
convertible into such capital stock; granted any registration rights;
purchased, redeemed, retired, or otherwise acquired any shares of any
such capital stock; or declared or paid any dividend or other
distribution or payment in respect of shares of capital stock;
(ii) amended the Articles of
Incorporation, Bylaws or other organizational documents of the
Company;
(iii) incurred any indebtedness or other
liabilities (whether accrued, absolute, contingent or otherwise),
guaranteed any indebtedness or sold any assets;
(iv) suffered any damage, destruction or
loss to any of the tangible assets of the Company, whether or not
covered by insurance;
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(v) increased the regular rate of
compensation payable by it to any employee or increased such
compensation by bonus, percentage, compensation service award or
similar arrangement theretofore in effect for the benefit of any of
its employees, and no such increase is required;
(vi) hired, committed to hire or
terminated any employee;
(vii) established or agreed to establish
any pension, retirement or welfare plan for the benefit of its
employees not theretofore in effect;
(viii) experienced any labor organizational
efforts, strikes or formal complaints or entered into any collective
bargaining agreements with any union;
(ix) suffered any change in its financial
condition, assets, liabilities, business or prospects or suffered any
other event or condition of any character which individually or in the
aggregate has or might reasonably be expected to have a material
adverse effect on its business or prospects;
(x) entered into any commitments or
transactions or made any capital expenditures involving aggregate
amount or value in excess of $25,000 or made any single capital
expenditure which exceeded $10,000;
(xi) disposed of any of its assets,
written down the value of any assets, written off as uncollectible any
accounts receivable or revalued any of its assets;
(xii) subjected any of its assets,
tangible or intangible, to any lien, encumbrance or restriction
whatsoever, except for liens for current property taxes not yet due
and payable;
(xiii) paid, discharged or satisfied any
claims, liabilities or obligations (absolute, accrued, contingent or
otherwise);
(xiv) entered into, terminated or received
notice of termination of (A) any license, distributorship, dealer,
sales representative, joint venture, credit, or similar agreement, or
(B) any contract or transaction involving a total remaining commitment
by or to the Company of at least $10,000;
(xv) cancelled or waived any claims or
rights with a value to the Company in excess of $10,000;
(xvi) made any change in any method of
accounting or accounting practice;
(xvii) canceled, or failed to continue,
insurance coverage; or
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(xviii) agreed, whether in writing or
otherwise, to take any action described in this Section 5(h).
(i) Ownership of Properties. Schedule 5(i)(i)
sets forth a list of all of the material assets of the Company owned, leased or
used by the Company in connection with the operation of its business (the
Assets), including, as to real property owned or leased by the Company (the
Real Property), the legal description of the Real Property. The present zoning,
subdivision, building and other ordinances and regulations applicable to the
Real Property permit the continued operation, use, occupancy and enjoyment of
the Real Property consistent with past practices, and the Company is in
compliance with, and has received no notices of violations of, any applicable
zoning, subdivision or building regulation, ordinance or other law, regulation,
or requirement. Except as set forth on Schedule 5(i)(ii), the Company has good
and marketable title to all of the Assets owned by it including furniture,
fixtures and equipment, fixed assets and inventory, and all contract rights and
intangible assets, and good and valid leasehold estates in all of the Assets
leased by it, free and clear of mortgages, security interests, liens, defects,
charges, encumbrances, restrictions and rights of third parties (excluding
accounts payable in the ordinary course of business). Schedule 5(i)(ii) also
includes a UCC lien search for the Company showing security interests of record
relating to the Assets in every place where such security interests are legally
required to be filed and include copies of all such financing statements. All
equipment and other personal property constituting a portion of the Assets is
in good operating condition and repair, ordinary wear and tear excepted. The
Assets constitute all of the operating assets of the Company necessary or
appropriate for the continued operation of the business of the Company. The
Company has sufficient title in and to the Assets necessary or advisable to
operate and conduct the business of the Company in the same fashion as the
Company was conducting such business.
(j) Taxes. The Company has timely filed all
federal, state and local tax returns or information returns required to be
filed by it. All of such returns have been prepared accurately and filed in
accordance with applicable laws and regulations. Except as set forth on
Schedule 5(j), the Company has paid all taxes and assessments (including,
without limitation, income, excise, unemployment, social security, occupation,
franchise, property, sales and use taxes, import duties or charges, and all
penalties and interest in respect thereof) due and payable by it. The Company
and any predecessors in interest have withheld or collected from each payment
made to each of their employees the amount of all taxes required to be withheld
or collected therefrom, and the Company and any predecessors in interest have
paid the same to the proper tax depositories or collecting authorities. Except
as set forth on Schedule 5(j), the Company has not (i) been audited by any
taxing authority, (ii) received notice that any taxing authority contemplates
such an audit, (iii) signed any extension agreement with any taxing authority,
(iv) received notice of any deficiencies, adjustments, assessments or other
charges with respect to taxes paid or payable or (v) made any payment, or
provided any benefit, to any officer, employee, former officer or former
employee that is not allowable as a deduction under the Code or the regulations
thereunder.
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(k) Insurance. The Company maintains in full
force and effect, with no premium arrearages, insurance policies bearing the
numbers, for the terms, with the companies, in the amounts and providing the
coverage set forth on Schedule 5(k). True and correct copies of all such
policies, and all endorsements thereto, have been delivered to SEI. All such
policies are valid, outstanding and enforceable and taken together, provide
adequate insurance coverage for the Assets and operations of the Company and
will continue in full force and effect following the consummation of the
Combination. Except as set forth on Schedule 5(k), there are no pending claims
against such insurance by the Company as to which insurers are defending under
reservation of rights or have denied liability, and except as set forth on
Schedule 5(k), there exists no claim under such insurance that has not been
properly filed by the Company.
(l) Environmental Conditions.
(i) The Company is currently in
compliance with all Environmental Laws (as defined below), which
compliance includes, without limitation, the possession by the Company
of all permits and other governmental authorization required under
applicable Environmental Laws to operate the business as currently
operated, and is in compliance with the terms and conditions thereof.
(ii) The Company has not stored any
Hazardous Substances (as defined below) on any of the Real Property,
except in compliance with applicable Environmental Laws.
(iii) The Company has not disposed of or
released any Hazardous Substances on any of the Real Property.
(iv) The Company has not utilized any
transporters or disposal facilities for the transport or disposal of
Hazardous Substances except as indicated on Schedule 5(l)(iv).
(v) The Company has not received any
communication (written or oral), whether from a governmental
authority, citizen's group, employee or otherwise, that alleges that
such entity is not in full compliance with Environmental Laws, and
there are no circumstances that may prevent or interfere with such
full compliance in the future. There is no Environmental Claim (as
defined below) pending or threatened against the Company.
(vi) There have been no actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or
disposal of any Hazardous Substances that could form the basis of any
Environmental Claim against the Company, and the Company knows of no
such actions, activities, circumstances, conditions, events or
incidents.
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(vii) The Real Property and, to the best
knowledge of the Company, adjoining properties, have never been
utilized for any industrial or commercial operation involving any
Hazardous Substance except in the ordinary course of business.
The following terms shall have the following
meanings:
Environmental Claim means any claim, action,
cause of action, investigation or notice (written or oral) by any
person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the presence, or release into the
environment, of Hazardous Substances at any location which is or has
been owned, leased, operated or utilized by the Company or (b)
circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
Environmental Laws means the federal, state,
regional, county or local environmental, health or safety laws,
regulations, ordinances, rules and policies and common law in effect
on the date hereof and the Closing Date relating to the use,
refinement, handling, treatment, removal, storage, production,
manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of Hazardous Substances, or otherwise
relating to protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), as the same may be amended or modified
to the date hereof and the Closing Date.
Hazardous Substances means any toxic or
hazardous waste, pollutants or substances, including, without
limitations, asbestos containing materials (ACMs), polychlorinated
biphenyls (PCBs), petroleum products, byproducts, or other hydrocarbon
substances, substances defined or listed as a hazardous waste,
hazardous substance, toxic substance, toxic pollutant, or similarly
identified substance or mixture, in or pursuant to any Environmental
Law and medical or infectious waste.
(m) Contracts and Commitments. Except as
described on Schedule 5(m) hereto, the Company is not a party or subject to any
of the following (whether written or oral, express or implied): (i) any
agreement restricting competition or (ii) any commitments or obligations,
contingent or otherwise, under any contract or agreement (A) for the purchase
or sale of supplies, services or other items in excess of $10,000 in any one
instance, (B) for the purchase or sale of any equipment or machinery which is
capitalized or which is expensed and in excess of $10,000, (C) for the
performance of services for others in excess of $10,000 in any one instance or
for a period of more than 90 days, (D) for the lease of any property, tangible
or intangible, (E) with any Shareholder, partner, officer or director of the
Company or any affiliate of such persons, (F) not in the ordinary course of
business or (G) for any power of attorney, whether limited or general, granted
by or to the Company. The Company has
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delivered to SEI true and complete copies of all of the contracts, leases and
agreements described on Schedule 5(m) (the Company Agreements). Except as noted
in such Schedule, the Company Agreements are valid and in full force and
effect, there has been no threatened cancellation thereof and there are no
outstanding disputes thereunder; each is with unrelated third parties and was
entered into on an arms-length basis in the ordinary course of business; all
will continue to be binding in accordance with their terms after consummation
of the transactions contemplated herein; and to the knowledge of the Company,
there is no pending or threatened bankruptcy, insolvency or similar proceeding
with respect to any other party to the Company Agreements. There are no
contracts, leases, agreements or other instruments to which the Company is a
party or is bound (other than insurance policies) which could either singularly
or in the aggregate have an adverse effect on the value of the Company.
(n) No Undisclosed Liabilities. With the
exception of the liabilities set forth on Schedule 5(n) or as reflected on the
Financial Statements, the Company does not have any material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise
or whether due or to become due, and the Company knows or has no reason to know
of any basis for the assertion against the Company of any such liability or
obligation of any nature not described in Schedule 5(n).
(o) Employees and Labor Matters.
(i) Schedule 5(o) contains a complete
and accurate list of the following information for each employee or
director of the Company: name; job title; current compensation paid or
payable and any change in compensation since December 31, 1995;
vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, or any other employee
benefit plan or any director plan.
(ii) No employee or director of the
Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or director and
any other person or entity that in any way adversely affects or will
affect (A) the performance of his duties as an employee or director of
the Company, or (B) the ability of the Company to conduct its
business. To the Company's knowledge, no director, officer, or other
key employee of the Company intends to terminate his employment with
the Company.
(iii) The Company is in compliance in all
material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours, occupational safety and health, including laws concerning
unfair labor practices within the meaning of Section 8 of the National
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Labor Relations Act, and the employment of non-residents under the
immigration Reform and Control Act of 1986.
(iv) Except as disclosed on Schedule
5(o),
(A) there are no charges,
governmental audits, investigations, administrative
proceedings or complaints concerning the Company's employment
practices pending or, to the knowledge of the Company,
threatened before any federal, state or local agency or court,
and, to the knowledge of the Company, no basis for any such
matter exists;
(B) the Company is not a party to
any union or collective bargaining agreement, and, to the
knowledge of the Company, no union attempts to organize the
employees of the Company have been made, nor are any such
attempts now threatened; and
(C) the Company has not experienced
any organized slowdown, work interruption, strike or work
stoppage by its employees.
(p) Employee Benefit Matters. The employee
benefit plans and agreements described in Schedule 5(p) hereto are the only
employee benefit plans and agreements maintained by the Company for the benefit
of its Shareholders, officers, directors, employees, former employees, or
independent contractors, including, without limitation, (i) profit sharing,
pension, ESOP, 401(k) or other retirement plans or programs, (ii) current and
deferred compensation, severance, vacation, stock purchase, stock option, bonus
and incentive compensation benefits and (iii) medical, hospital, life, health,
accident, disability, death and other fringe and welfare benefits, including
any split-dollar life insurance policies, all of which plans, programs,
practices, policies and other individual and group arrangements and agreements,
including any unwritten compensation, fringe benefit, payroll or employment
practices, procedures or policies of any kind or description are hereinafter
referred to as the Benefit Plans. Except as disclosed on Schedule 5(p), there
are no contributions or payments due with respect to any of the Benefit Plans,
nor will any such contributions or payments be due or required to be paid on or
prior to the Closing Date. Each Benefit Plan of the Company has been operated
and administered in substantial compliance with the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA), and the provisions of the Code
applicable to it. No Benefit Plan of the Company that is subject to the minimum
funding standards of ERISA or the Code, if any, has incurred any accumulated
funding deficiency within the meaning of ERISA or the Code. All contributions
with respect to a Benefit Plan of the Company that is subject to Code Section
412 or ERISA Section 302 have been timely made and there is no lien or expected
to be a lien under Code Section 412(n) or ERISA Section 302(f) or tax under
Code Section 4971. No Benefit Plan of the Company has a liquidity shortfall as
defined in Code Section 412(m)(5). The Company is not subject to and cannot
reasonably be expected to become subject to a lien under Code Section
401(a)(29). No event has occurred in connection with a Benefit Plan of the
Company that could result in liability to the Company under Title IV of
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ERISA. The Company has not incurred any liability to the Pension Benefit
Guaranty Corporation in connection with any Benefit Plan of the Company which
is subject to Title IV of ERISA, if any. The assets of each Benefit Plan of the
Company that is subject to Title IV of ERISA, if any, are sufficient to provide
all benefit liabilities (as defined in ERISA Section 4001(a)(16)) under such
Benefit Plan if such Benefit Plan terminated, and are also sufficient to
provide all other benefits due under the Benefit Plan (including, but not
limited to, ancillary, disability, shutdown, early retirement and welfare
benefits). The Company has not had an obligation to contribute (as defined in
ERISA Section 4212) to a multi-employer pension plan (as defined in ERISA
Sections 4001(a)(3) and 3(37)(A)) at any time. No event which constitutes a
reportable event as defined in Section 4043 of ERISA has occurred or is
continuing with respect to any Benefit Plan covered by ERISA. No facts exist
which will result in a material increase in the premium costs of any Benefit
Plan for which benefits are insured or a material increase in benefit costs of
any Benefit Plan which provides self-insured benefits. No prohibited
transaction (as defined in ERISA Section 406 or Code Section 4975) has occurred
with respect to any Benefit Plan. None of the Benefit Plans has any current or
projected liability in respect of post-employment or post-retirement health or
medical or life insurance benefits for former or retired employees of the
Company, except as required to avoid excise taxes under Code Section 4980B. All
Benefit Plans subject to Code Section 4980B or Part 6 of Title I of ERISA have
been maintained in compliance with the requirements of Code Section 4980B and
Part 6 of Title I of ERISA. There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company that could
result in the payment of any amount that would not be deductible under Code
Sections 162(m) or 280G. As of the Closing Date, the Company has no material
liabilities under any Benefit Plan that is not reflected in the Financial
Statements.
(q) Trademarks, Trade Names, Etc. Set forth on
Schedule 5(q) is a description of each trademark, trade name, service mark,
patent or copyright held by the Company and any current registration or
application with respect thereto. The Company is not currently in receipt of
any notice of any violation of, and has no reason to believe that the Company's
operations are violating the rights of others with respect to any such matter,
and the Company has taken reasonable measures to protect its rights with
respect to any such matters as are proprietary to the Company.
(r) Litigation. Except as set forth in Schedule
5(r), there is no litigation, arbitration, governmental claim, investigation or
proceeding pending or threatened against the Company, at law or in equity,
before any court, arbitration tribunal or governmental agency. No such
proceeding set forth in Schedule 5(r) concerns the ownership or other rights
with respect to the Shares. The Company knows of no facts on which material
claims may be hereafter made against the Company. All claims and litigation
against the Company are fully covered by insurance, except as indicated on
Schedule 5(r).
(s) Compliance with Laws, Regulations and Court
Orders. There is not outstanding or threatened any order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal against or
affecting the Company, its Shareholders or the Shares.
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The Company is in compliance with all applicable federal, state and local laws,
regulations and administrative orders, including without limitation those
concerning the sale of insurance in connection with the warranties provided for
pursuant to the Company's service and maintenance agreements, and have received
no notices of alleged violations thereof except as disclosed in Schedule 5(s)
hereof. Neither the Company, nor, to the knowledge of the Company, any licensed
technician or other individual affiliated with the Company has, during the past
three (3) years, been the subject of any inspection, investigation, survey,
audit, monitoring or other form of review by any governmental regulatory
entity, trade association, professional review organization, accrediting
organization or certifying agency for the purpose of any alleged improper
activity on the part of such individual, nor has the Company received any
notice of deficiency in connection with its operation. No governmental
authorities are currently conducting proceedings against the Company and no
such investigation or proceeding is pending or being threatened.
(t) Certain Payments. Neither the Company nor any
Shareholder, director, officer, agent, or employee of the Company, or any other
person associated with or acting for or on behalf of the Company, has directly
or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any person, private or public, regardless
of form, whether in money, property, or services (A) to obtain favorable
treatment in securing business, (B) to pay for favorable treatment for business
secured, (C) to obtain special concessions or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company, or
(D) in violation of any law, or (ii) established or maintained any fund or
asset that has not been recorded in the books and records of the Company.
(u) Consents and Approvals. Except as set forth
on Schedule 5(u), no consents, approvals, authorizations or orders of third
parties, including governmental authorities, are necessary for the
authorization, execution and performance by the Company of this Agreement.
(v) No Broker's Fees. The Company has no
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(w) Disclosure.
(i) No representation or warranty made
herein by the Company, nor in any statement, certificate or instrument
to be furnished to SEI by the Company pursuant to any Transaction
Document, contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make
these statements contained herein and therein not misleading.
(ii) There is no fact known to the
Company that has specific application to the Company (other than
general economic or industry conditions) and that
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materially adversely affects the Shares, the Assets or the business,
prospects, financial condition, or results of operations of the
Company that has not been set forth in this Agreement.
(x) Reliance on Representations. The Company
understands and intends that SEI and its management will rely upon the
representations of the Company made in this Agreement, and they are entitled to
rely upon each and all of the same without further inquiry.
Section 6. Representations and Warranties of SEI. SEI hereby
represents and warrants to the Company as follows as of the date hereof and as
of the Closing Date:
(a) Corporate Organization. SEI is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, has all requisite corporate power and authority to
execute and deliver this Agreement and holds all licenses, permits and other
required authorizations from governmental authorities necessary to conduct its
business as it is now being conducted.
(b) Capitalization. As of the date hereof, SEI's
authorized capital stock consists of (i) 30,000,000 shares of SEI Common Stock,
8,576,610 of which are issued and outstanding and (ii) 10,000,000 shares of
Preferred Stock, $.01 par value per share, none of which are issued and
outstanding. All issued and outstanding shares of SEI Common Stock have been
duly and validly authorized, issued, fully paid and nonassessable. No
shareholder of SEI has any preemptive rights with respect to the issuance of
shares of SEI Common Stock.
(c) Authorization and Validity. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by all
necessary corporate action. This Agreement, when executed, will constitute the
legal, valid and binding obligation of SEI, enforceable against SEI in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance by SEI of the Transaction
Documents to be executed and delivered by it (i) do not require the consent of
or notice to any governmental or regulatory authority or any other third party;
(ii) will not conflict with any provision of SEI's Restated Certificate of
Incorporation or Bylaws; (iii) will not conflict with or result in a violation
of any law, ordinance regulation, ruling, judgement, order or injunction of any
court or governmental instrumentality to which SEI is a party or by which SEI
or any of its properties are bound; (iv) will not conflict with, constitute
grounds for termination of, result in a breach of, constitute a default under,
require any notice under, or accelerate or permit the acceleration of any
performance required by the terms of any agreement, instrument, license or
permit to which SEI
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is a party or by which any of its properties are bound; and (v) will not create
any lien, encumbrance or restriction upon any of the assets or properties of
SEI.
(e) Litigation and Claims. There are no claims,
lawsuits, actions, arbitrations, administrative or other proceedings,
governmental investigations or inquiries pending or threatened against SEI
affecting the performance by SEI of the Transaction Documents and there is no
basis for any such action or any state of facts or occurrence of any event
which might give rise to the foregoing.
(f) No Broker's Fees. Except as set forth on
Schedule 6(f), SEI does not have any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
(g) Statements True and Correct. No
representation or warranty made herein by SEI, nor in any statement,
certificate or instrument to be furnished to the Company by SEI pursuant to any
Transaction Document, contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make these
statements contained herein and therein not misleading.
Section 7. Additional Covenants and Agreements.
(a) Access to Information. The Company shall
accord to SEI, its counsel, accountants and other representatives full access
throughout the period prior to the Closing to all of the properties, books,
records, contracts, commitments and records of the Company and furnish SEI
during such period with all such information concerning the business and
properties of the Company as SEI and its representatives reasonably may
request. Such parties shall also be allowed access, upon reasonable notice, to
consult with the officers, employees, accountants, counsel and agents of the
Company in connection with such investigation of the properties and business of
the Company. In addition, at all times prior to the Closing, SEI will afford
to the Company and its representatives access, upon reasonable notice, to all
of SEI's properties, books and records as the Company may reasonably request.
No such investigation shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of any party under the
Agreement.
(b) Affirmative Covenants of the Company. During
the period from the date of this Agreement to the Closing Date, the Company
will (i) continue to operate its business in the usual, regular, and ordinary
course of business, consistent with past practices, (ii) obtain the written
approval of SEI prior to making any capital expenditure in excess of $25,000 in
the aggregate, (iii) maintain in effect adequate casualty, public liability,
professional malpractice and workers' compensation insurance coverage, (iv)
maintain the Assets in their present condition, (v) comply with all laws and
regulations of governmental agencies or authorities, including applicable tax
laws and regulations, (vi) operate its business in the manner necessary to
maintain its reputation and the goodwill of its customers, vendors, lessors and
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others having business relations with the Company, and (vii) to keep in force
all licenses, permits and approvals necessary to the operation of its business
as now conducted.
(c) Negative Covenants of the Company. During the
period from the date of this Agreement to the Closing Date, the Company will
not, without the prior written consent of SEI, and unless otherwise expressly
permitted herein:
(i) enter into, renew, amend, breach or
terminate any contract or agreement to which it is a party other than
in the ordinary course of business;
(ii) increase the salary of or declare or
pay any bonus to any employee;
(iii) incur any additional debt obligation
or other obligation for borrowed money in excess of an aggregate of
$25,000 except in the ordinary course of business of the Company
consistent with past practices, or impose, or suffer the imposition,
on any Asset of the Company of any lien or permit any such lien to
exist;
(iv) issue, sell, repurchase, redeem, or
otherwise acquire or exchange, directly or indirectly, any Shares or
any securities convertible into any Shares, or declare or pay any
dividend or make any other distribution in respect of the Shares;
(v) purchase or acquire any of the
Assets, whether real or personal, tangible or intangible, or sell or
dispose of any of the Assets, whether real or personal, tangible or
intangible, except in the ordinary course of business and consistent
with past practices;
(vi) purchase any securities or make any
material investment, either by purchase of stock or other securities,
contributions to capital, asset transfers, or purchase of any assets,
in any entity, or otherwise acquire direct or indirect control over
any other entity;
(vii) except in the ordinary course of
business (and, even if in the ordinary course of business, then not in
an amount to exceed $25,000 in the aggregate), make or commit to make
any capital expenditure, or enter into any lease of capital equipment
as lessee or lessor;
(viii) make any loan to any person or
increase the aggregate amount of any loan currently outstanding to any
person;
(ix) engage in any transaction other than
in the ordinary course of business and consistent with past practice;
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(x) adopt any new employee benefit plan
or make any material change in or to any Benefit Plan other than any
such change that is required by law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified
status of any such Benefit Plan;
(xi) commence any litigation other than
in accordance with past practice, settle any litigation involving any
liability of the Company for material money damages or restrictions
upon the operations of the Company;
(xii) fail to deliver to SEI any notice or
other information regarding pending or threatened litigation in
respect of it or its operations;
(xiii) take, fail to take, or permit any
action, the result of which would be to make any representation or
warranty of Section 5 untrue, or prevent the satisfaction of any
condition set forth in Sections 8 and 10;
(xiv) change or alter any method of
accounting; or
(xv) change any provision of its Articles
of Incorporation or Bylaws.
(d) Notice of Adverse Change. The Company will
advise SEI in writing of any material adverse change in the Assets, the
business, financial condition or prospects of the Company from the date of this
Agreement to the Closing Date.
(e) Best Efforts. The Company will use its best
efforts to take all action and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement. The Company will
use its best efforts to secure all consents and approvals required to carry out
the transactions contemplated by this Agreement and to satisfy all other
conditions to the obligations of the Company and SEI hereunder.
(f) Licenses; Permits. The Company will cooperate
in all reasonable respects with SEI in its applications to obtain such licenses
and permits, if any, as may be necessary in order for SEI to operate the
business as it is currently operated.
(g) No Solicitation of Other Offers. The Company,
acting through any director, officer or other agent (including any investment
banker, attorney, accountant or other representative retained by it), shall not
solicit or encourage, including by way of furnishing information, any inquiries
or the making of any proposal which may reasonably be expected to lead to the
acquisition of any of the Shares or a substantial portion of the Assets. The
Company will not, prior to the Closing, enter into or conduct any discussions
with any other prospective purchaser of any or all of the Shares or the Assets
regarding such a purchase or enter into any agreement or negotiations with
respect to the disposition of any or all of the Shares or the Assets,
regardless of the form of the transaction, without the consent of SEI, other
than in the
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ordinary course of business. The Company shall promptly advise SEI in writing
of any such inquiries, proposals or discussions received by the Company after
the date hereof.
(h) Confidentiality and Public Announcements. The
Company shall keep confidential all information concerning the Combination or
provided to it by SEI and, in the event of termination of the Combination
pursuant to Section 11, shall deliver to SEI all documents and other materials
previously delivered (and copies thereof) concerning the transactions
contemplated hereby. Neither the Company nor its Shareholders nor any of their
representatives shall make any public announcement with respect to this
Agreement without the prior written consent of SEI.
(i) Risk of Loss. The Company shall retain all
risk of condemnation, destruction, loss or damage due to fire or other casualty
from the date of this Agreement until the Closing. If the condemnation,
destruction, loss or damage is such that the operation of the Company is
materially interrupted or curtailed or any of the Assets are materially
affected, then SEI shall have the right to terminate this Agreement. If SEI
nonetheless elects to close, the Company shall remit all net condemnation
proceeds or third party insurance proceeds to SEI, and either the number of
shares of SEI Common Stock to be delivered pursuant to Section 2(a) shall be
adjusted at the Closing to reflect such condemnation, destruction, loss or
damage to the extent that insurance or condemnation proceeds are not sufficient
to cover such destruction, loss or damage.
(j) Subchapter S Matters. If the Company is an S
corporation, the Company shall prepare and file, at its expense, the short
period tax returns of the Company ending on the Closing Date. Such returns
shall be provided for SEI's prior review and approval, which approval shall not
be unreasonably withheld or delayed. The Company shall file as an S corporation
for that short period. SEI shall make available any information in its or the
Company's possession which is reasonably required by the Company to complete
such returns at no cost to the Company.
(k) Affiliates. Each person who is an Affiliate
of the Company, as that term is defined in the Securities Act of 1933, as
amended (the Act), hereby acknowledges and agrees to the following: (i) the
shares of Common Stock issuable to such Affiliate will be held by such
Affiliate pursuant to the provisions of the Act and the rules and regulations
thereunder, (ii) no sale or disposition of such shares of Common Stock will be
made except pursuant to the terms of SEI's shelf Registration Statement on Form
S-4 (the Registration Statement), the post-effective amendment and the
prospectus contained therein, the Act, and Rule 145(d) thereunder, and (iii)
each such certificate representing the shares of Common Stock issued to an
Affiliate will bear a restrictive legend setting forth the restrictions on
transfer referred to above.
Section 8. Conditions to Each Party's Obligation to Effect the
Combination. The respective obligation of each party to effect the Combination
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
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(a) This Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable law, by the applicable regulations of the Nasdaq National Market and
by any regulatory body, as the case may be, and by the requisite vote of the
Shareholders.
(b) Any waiting period applicable to the
consummation of the Combination under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 shall have expired or been terminated.
(c) Neither of the parties hereto shall be
subject to any order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this Agreement.
In the event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
(d) SEI's Registration Statement shall have
become effective and shall be effective at the Effective Time, and no stop
order suspending effectiveness of the Registration Statement shall have been
issued, no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state securities laws relating to the issuance or
trading of the SEI Common Stock to be issued to the Shareholders in connection
with the Combination shall have been received.
(e) All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or made,
except for filings in connection with the Combination and any other documents
required to be filed after the Effective Time and except where the failure to
have obtained or made any such consent, authorization, order, approval, filing
or registration would not have a material adverse effect on the business of SEI
and the Company (and their respective subsidiaries), taken as a whole,
following the Effective Time.
(f) The SEI Common Stock to be issued to the
Shareholders in connection with the Combination shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
Section 9. Conditions to Obligation of the Company to Effect the
Combination. The obligation of the Company to effect the Combination shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The
representations and warranties of SEI set forth herein in Section 6 above shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of such date.
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(b) Performance; Document Delivery. SEI shall
have performed in all material respects, at or prior to the Closing Date, all
acts in accordance with its covenants set forth herein, including, but not
limited to, delivery to the Company of the following documents:
(i) Certificates for the Shares of SEI
Common Stock to be issued pursuant to Section 2;
(ii) A good standing certificate
regarding SEI certified by the Secretary of State of the State of
Delaware dated within five business days prior to Closing;
(iii) A certificate dated as of the
Closing Date signed by a duly authorized officer of SEI certifying
that the representations and warranties of SEI set forth herein are
true and correct in all material respects as of the Closing Date and
that SEI has fulfilled all of the conditions of this Section 9;
(iv) Resolutions adopted by the Board of
Directors of SEI approving the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby, certified by the Secretary of SEI; and
(v) An incumbency certificate certifying
the identity of the officers of SEI.
(c) Opinion of Counsel. SEI shall have delivered
to the Company an opinion of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, counsel to SEI, dated the Closing Date,
substantially in the form attached hereto as Schedule 9(c). In addition, the
Company shall have received an opinion of counsel to the Company in form and
substance satisfactory to the Company concerning the tax consequences of the
Combination to the Company and the Shareholders.
(d) No Injunction, Etc. No action proceeding,
investigation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the business or
operations of SEI, if such action, proceeding, investigation or legislation, in
the reasonable judgment of the Company or its counsel, would make it
inadvisable to consummate such transactions.
Section 10. Conditions to Obligation of SEI to Effect the
Transaction. The obligations of SEI to effect the Combination shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
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(a) Due Diligence Review; Delivery of Schedules.
SEI shall have completed, and in its sole discretion be satisfied with the
results of, its due diligence review of the operations and financial condition
of the Company. The Company shall have delivered to SEI the Schedules called
for by this Agreement, and such Schedules shall be satisfactory to SEI in its
sole discretion.
(b) Representations and Warranties. The
representations and warranties of the Company contained in this Agreement, or
any document or instrument delivered to SEI hereunder, shall be true and
correct in all material respects as of the Closing Date with the same effect as
though made on and as of such date.
(c) Performance; Document Delivery. The Company
shall have performed in all material respects, at or prior to the Closing Date,
all acts in accordance with their covenants herein, including, but not limited
to, delivery to SEI of the following documents:
(i) A good standing certificate
regarding the Company and any Shareholder that is not a natural
person, certified by the Secretary of State of such party's state of
organization dated within five business days prior to Closing;
(ii) A certificate dated as of the
Closing Date signed by the duly authorized officers of the Company
certifying that the representations and warranties of the Company set
forth herein are true and correct in all material respects as of the
Closing Date and that the Company has fulfilled all of the conditions
of this Section 10;
(iii) Resolutions of the Board of
Directors and Shareholders of the Company and any Shareholder that is
not a natural person in form and substance satisfactory to SEI
approving the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby,
certified by an appropriate officer of the Company and any such
Shareholder;
(iv) An incumbency certificate certifying
the identity of the officers of the Company and any Shareholder that
is not a natural person;
(v) Certificates representing the Shares
being exchanged, together with accompanying stock transfer powers or
instruments of assignment, duly endorsed in blank;
(vi) Resignations of each of the officers
and directors of the Company effective as of the Closing Date;
(vii) Releases of each Shareholder and
each officer and director of the Company concerning any claim against
the Company other than current accrued wages and benefits;
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(viii) All books and records of the
Company, including all corporate and other records, minute books,
stock record books, stock registers, books of accounts, contracts,
agreements and such other documents or certificates as shall be
reasonably requested by SEI; and
(ix) Evidence that all agreements or
arrangements, whether written or oral, among the Shareholders and/or
the Company that relate in any manner to the Shares have been
terminated.
(d) No Adverse Change. There shall not have been
any change between the date of the latest Financial Statements and the Closing
Date which has had or will have a material adverse effect on the business,
operations, financial condition, Assets or prospects of the Company, and a
certificate shall have been delivered to SEI to such effect signed by each of
the Shareholders and such executive officers of the Company as SEI may request.
(e) Opinion of Counsel. SEI shall have been
furnished with a favorable opinion of counsel to the Company, dated the Closing
Date, substantially in the form attached hereto as Schedule 10(e).
(f) Consents and Approvals. The Company shall
have obtained all necessary consents and approvals, in form and substance
satisfactory to SEI, required under all leases and other material contracts
pertaining to the Assets or the business of the Company and satisfying any
approval or permit or licensing requirements for consummation of this
transaction and necessary to carry on the business of the Company as it is
currently being conducted.
(g) No Injunction, Etc. No action, proceeding,
investigation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the business or
operations of the Company, if such action, proceeding, investigation or
legislation, in the reasonable judgment of SEI or its counsel, would make it
inadvisable to consummate such transactions.
(h) Lockup Agreements. Each person listed on
Schedule 10(h)(i) shall have entered into an agreement with SEI restricting the
resale of shares of Common Stock substantially in the form attached hereto as
Schedule 10(h)(ii).
(i) Employment Agreements. SEI and certain
employees of the Company shall have entered into employment agreements
substantially in the form attached hereto as Schedule 10(i).
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(j) Indemnification Agreements. SEI and each of
the Shareholders shall have entered into Indemnification Agreements
substantially in the form attached hereto as Schedule 10(j).
(k) Escrow Agreements. SEI and each of the
Shareholders shall have entered into the Escrow Agreement pursuant to Section
2(a)(iii).
(l) Pension Plan Liability. SEI shall be
satisfied that it will incur no liability with respect to pension or other
post-retirement benefits, except pursuant to SEI's pension plan in which all
full-time Company employees, who will remain employed by the Company after the
Closing, are eligible to participate.
(m) Board Approval. This Agreement and the
Combination shall have been approved and authorized by the Board of Directors
of SEI.
Section 11. Termination.
(a) Means of Termination. This Agreement may
be terminated at any time prior to the Closing in the following ways:
(i) by the mutual consent in writing of
the Company and SEI;
(ii) by SEI if there has been a material
violation or breach by the Company of any of the agreements,
representations or warranties contained in this Agreement which has
not been waived by SEI in writing, or if any of the conditions set
forth in Sections 8 and 10 hereof have not been satisfied within six
(6) months of the date hereof or have not been waived by SEI in
writing;
(iii) by the Company if there has been a
material violation or breach by SEI of any of the agreements,
representations or warranties contained in this Agreement which has
not been waived by the Company in writing, or if any of the conditions
set forth in Sections 8 and 9 hereof have not been satisfied within
six (6) months of the date hereof or have not been waived by the
Company in writing; or
(b) Effect of Termination. Except as provided
in Section 12(b) hereof, in the event this Agreement is terminated in
accordance with this Section 11, this Agreement shall become void and of no
further force or effect, except the obligations of each party to preserve the
confidentiality of documents, certificates and information furnished to such
party pursuant hereto and for any obligation or liability of any party based on
or arising from any breach or default by such party with respect to its
representations, warranties, covenants or agreements contained in the
Transaction Documents.
Section 12. Expenses and Remedies.
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(a) Expenses. Except as provided in
section 12(b) hereof, each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
Combination, including its own legal, accounting and audit fees.
(b) Remedies.
(i) The Company agrees that if the
Company terminates this Agreement pursuant to Section 11(a)(iii)
because of the failure to receive approval of the Combination by the
Shareholders, all expenses, including, without limitation, all legal
and accounting expenses, incurred by SEI in connection with the
negotiations among the parties, and the authorization, preparation,
execution and performance of this Agreement and the transactions
contemplated hereby shall be paid by the Company.
(ii) The Company agrees that in the event
of a termination of this Agreement pursuant to Section 11, for a
period of six months from the date of such termination, neither the
Company nor any of its officers, directors, management employees,
affiliated persons or agents, or the Shareholders, will, directly or
indirectly, (A) negotiate or discuss with any other person or entity
any transaction involving a merger of the Company, or the sale of any
shares in or assets of the Company (except for sales of inventory in
the ordinary course of business) or any other business combination
involving the Company, (B) reveal the terms of this Agreement to any
person or entity except for the purpose of carrying out the
transactions contemplated herein or (C) solicit, encourage, negotiate,
discuss or accept any offer, bid or proposal from any person or entity
respecting any transaction involving a merger of the Company, the sale
of any shares in or assets of the Company (except for sales of
inventory in the ordinary course of business) or any other business
combination involving the Company.
Section 13. Indemnification.
(a) Indemnification of SEI. The Company agrees to
indemnify and hold harmless SEI, each officer, director, employee or agent
thereof, their respective controlling persons, and their respective estates,
successors, and assigns (each an Indemnified Party), from and against any and
all claims, losses, damages, liabilities and expenses (including, without
limitation, settlement costs and any legal or other expenses for investigating
or defending any actions or threatened actions) (the Losses) reasonably
incurred by such Indemnified Party as a result of:
(i) the untruth, inaccuracy or breach of
any representation or warranty made by the Company in this Agreement
or any other Transaction Document;
(ii) the nonfulfillment or breach of any
covenant, agreement or obligation of the Company contained in this
Agreement or any other Transaction Document;
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(iii) any untrue statement of a material
fact relating to the Company that was made in reliance upon and in
conformity with information furnished by the Company to SEI and is
contained in any preliminary prospectus, the Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or any omission by the Company to state therein a
material fact relating to the Company required to be stated therein or
necessary to make such statements therein not misleading, and which is
not provided in writing to SEI by the Company;
(iv) any and all amounts of federal,
state, and/or local income, franchise, property, and/or sales and use
taxes that may be assessed against SEI with respect to any taxable
period(s) ending on or before the date of this Agreement for which
adequate provisions therefor have not been made through the Closing
Date, as reflected on the Company's books of account and in the
Company's financial statements as of the Closing Date; and the
amount(s) of any interest and/or penalties that may be assessed with
respect to said tax assessments. The amount(s) of any
indemnification(s) arising under this Agreement is to be computed net
of any and all tax benefits received by SEI as a result of the tax
assessment(s);
(v) any matter on any Schedule hereto as
may be specifically identified for indemnification in this Agreement
or any other Transaction Document; and
(vi) any claim or demand by any person
asserting any interest in any of the Shares or seeking dissenters' or
appraisal rights or any other claim in respect to the Combination.
(b) Limitations on the Company's Indemnity. The
Company shall be obligated to indemnify and hold harmless SEI pursuant to
Section 13(a) only to the extent that the aggregate of all indemnifiable Losses
exceeds $25,000.
(c) Indemnification of the Shareholders of the
Company. SEI shall indemnify and hold harmless the Shareholders pro rata in
accordance with their holdings of the Shares as of the Effective Time (each an
Indemnified Party) from and against any and all Losses reasonably incurred by
such Indemnified Party as a result of:
(i) the untruth, inaccuracy or breach of
any representation or warranty made by SEI in this Agreement or in any
other Transaction Document;
(ii) the nonfulfillment or breach of any
covenant, agreement or obligation of SEI contained in this Agreement
or in any other Transaction Document; or
(iii) any untrue statement or alleged
untrue statement of a material fact relating to SEI (other than those
that relate to the Company) contained in any preliminary prospectus,
the Registration Statement or any prospectus forming a part
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thereof, or any amendment thereof or supplement thereto, or arising
out of or based on any omission or alleged omission to state therein a
material fact relating to SEI (other than the Company) required to be
stated therein or necessary to make the statements therein not
misleading.
(d) Notification. Whenever any claim shall arise
for indemnification hereunder, the Indemnified Party shall notify the
indemnifying party promptly after such Indemnified Party has actual knowledge
of the facts constituting the basis for such claim, except that, in the event
of any claim for indemnification hereunder resulting from or in connection with
any claim or legal proceedings by a third party, such Indemnified Party shall
give prompt notice to the indemnifying party of such claim or the commencement
of legal proceedings in respect of which recovery may be sought against the
indemnifying party pursuant to the provisions of this Section 13. The notice to
the indemnifying party shall specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any such claim without the prior written consent of the
indemnifying party unless suit shall have been instituted against the
Indemnified Party and the indemnifying party shall have failed, within fifteen
(15) days after notice of institution of the suit, to take control of such suit
as provided in Section 13(e) below.
(e) Defense of Actions. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
indemnifying party, at its sole cost and expense, may, upon written notice to
the Indemnified Party, assume the defense of such claim or legal proceeding, to
the extent that the indemnifying party admits in writing its liability to the
Indemnified Party with respect to all material elements thereof. If the
indemnifying party assumes the defense of any such claim or legal proceeding,
the obligations of the indemnifying party hereunder as to such claim or legal
proceeding shall be limited to taking all steps necessary in the defense or
settlement thereof and to holding the Indemnified Party harmless from and
against any losses, damages, expenses, or liability caused by or arising out of
any settlement approved by the indemnifying party or any judgment in connection
with such claim or legal proceeding. Each Indemnified Party agrees that it will
cooperate with the indemnifying party in the defense of any such action, the
defense of which is assumed by the indemnifying party. Except with the consent
of the Indemnified Party, the indemnifying party shall not consent to the entry
of any judgment arising from any such claim or legal proceeding which, in each
case, does not include as an unconditional term thereof the delivering by the
claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect thereof, unless the indemnifying party has actually paid
to the Indemnified Party the full amount of such judgment or settlement. If the
indemnifying party does not assume the defense of any claim or litigation, any
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the indemnifying party, on such
terms as the Indemnified Party may deem appropriate. The indemnifying party
will promptly reimburse the Indemnified Party in accordance with the provisions
hereof.
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(f) Payment. All indemnification hereunder shall
be effected by payment of cash or delivery of a certified or official bank
check in the amount of the indemnification liability or by set-off against (i)
any amounts otherwise owed by SEI to the Company or by the Company to SEI, as
the case may be, or (ii) the escrowed shares of SEI Common Stock and cash
pursuant to the Escrow Agreement.
Section 14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered,
mailed by first-class registered or certified mail, postage prepaid, return
receipt requested or delivered by an overnight courier service, delivery charge
prepaid:
(a) If to the Company, to such address furnished
to SEI or at such other address as may be furnished to SEI by it in writing.
(b) If to SEI, to:
Service Experts, Inc.
P. O. Box 17102
Nashville, Tennessee 37217
Attention: Alan R. Sielbeck
with a copy to:
Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: J. Chase Cole, Esq.
or at such other address as may have been furnished to the Company by
SEI in writing.
Section 18. Miscellaneous.
(a) Entire Agreement. This Agreement and the
Schedules, certificates and other documents delivered pursuant hereto contain
and constitute the entire agreement and understanding between the Company and
SEI and supersede and cancel all prior agreements and understandings relating
to the subject matter hereof, whether written or oral, which shall remain in
effect. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except in writing signed by the parties hereto.
(b) Severability. Should any one or more of the
provisions of this Agreement or any agreement entered into pursuant hereto be
determined to be illegal or unenforceable, all other provisions of this
Agreement and such other agreements shall be given
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effect separately from the provision or provisions determined to be illegal or
unenforceable and shall not be affected thereby.
(c) Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the State of Tennessee
without regard to its principles of conflicts of laws.
(d) Further Assurances. Each party covenants that
at any time, and from time to time, after the Closing, it will execute such
additional instruments and take such actions as may be reasonably requested by
the other parties to confirm or perfect or otherwise to carry out the intent
and purposes of this Agreement.
(e) Waiver. Any failure on the part of any party
to comply with any of its obligations, agreements or conditions hereunder may
be waived by any other party to whom such compliance is owed. No waiver of any
provision of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.
(f) Assignment. SEI may assign its rights under
this Agreement to any affiliated entity, but otherwise this Agreement shall not
be assignable by any of the parties hereto without the written consent of all
other parties.
(g) Binding Effect. All of the terms of this
Agreement, whether so expressed or not, shall be binding upon the respective
personal representatives, successors and assigns of the parties hereto and
shall inure to the benefit of and be enforceable by the respective personal
representatives, successors and assigns of the parties hereto. This Agreement
shall survive the Closing and not be merged therein.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(j) Survival of Representations and Warranties.
The representations and warranties of the parties contained in this Agreement
or any other Transaction Document shall survive the Closing and shall not be
extinguished thereby notwithstanding any investigation or other examination by
any party.
(k) Construction of Terms. The language used in
the Agreement shall be construed, in all cases, according to its fair meaning,
and not for or against either party hereto. The parties acknowledge that each
party has reviewed this Agreement and that normal rules of construction to the
effect that any ambiguities are to be resolved against the drafting
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party shall not be employed in the interpretation of this Agreement. Whenever
the masculine gender is used herein, it shall be deemed to include the feminine
and the neuter.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and date first above written.
SERVICE EXPERTS, INC.
By:
---------------------------------
Title: Chief Executive Officer
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
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LIST OF SCHEDULES TO BE PROVIDED BY THE COMPANY
Schedule 2(a)(ii) Allocation of Purchase Price
Schedule 4(a) Title to the Shares
Schedule 4(e) Interested Transactions
Schedule 5(a) Jurisdictions Where Qualified
Schedule 5(b) Capitalization
Schedule 5(e) Predecessor Companies; Disposition of Assets
Schedule 5(f)(i) Financial Statements
Schedule 5(f)(ii) Exceptions to Financial Statements
Schedule 5(g) Accounts Receivable and Payable
Schedule 5(h) Absence of Certain Changes
Schedule 5(i)(i) Ownership of Properties
Schedule 5(i)(ii) Exceptions to Ownership of Properties
Schedule 5(j) Taxes
Schedule 5(k) Insurance
Schedule 5(l)(iv) Environmental Conditions
Schedule 5(m) Contracts and Commitments
Schedule 5(n) Liabilities
Schedule 5(o) Employees and Labor Matters
Schedule 5(p) Employee Benefit Plans and Agreements
Schedule 5(q) Trademarks, Trade Names, Etc.
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Schedule 5(r) Litigation
Schedule 5(s) Compliance with Laws, Regulations and Court
Orders
Schedule 5(u) Consents and Approvals
Schedule 10(e) Form of Opinion of Counsel to the Company
Schedule 10(h)(i) Persons Subject to Lockup
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LIST OF SCHEDULES TO BE PROVIDED BY SEI
Schedule 2(a)(iii) Form of Escrow Agreement
Schedule 2(c) Adjustments to Net Income
Schedule 6(g) No Broker's Fees
Schedule 9(c) Form of Opinion of Waller Lansden
Dortch & Davis, A Professional
Limited Liability Company
Schedule 10(h)(ii) Form of Lockup Agreement
Schedule 10(i) Form of Employment Agreement
Schedule 10(j) Form of Indemnification Agreement
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