EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CENTURY ACQUISITION CORPORATION
(THE "INVESTOR")
AND
CENTURY MAINTENANCE SUPPLY, INC.
(THE "CORPORATION")
AND
THE SHAREHOLDERS OF THE CORPORATION
DATED AS OF MAY 5, 1998
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TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions........................................... 1
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
SECTION 2.1 The Merger.................................................... 2
SECTION 2.2 Closing....................................................... 2
SECTION 2.3 Effective Time................................................ 2
SECTION 2.4 Certificate of Incorporation.................................. 3
SECTION 2.5 By-Laws....................................................... 3
SECTION 2.6 Officers and Directors........................................ 3
SECTION 2.7 Conversion and Cancellation of Shares......................... 3
SECTION 2.8 Employee Stock Options........................................ 5
SECTION 2.9 Payment for Shares and Options................................ 5
SECTION 2.10 Transfer of Shares after the Effective Time................... 5
SECTION 2.11 No Fractional Shares.......................................... 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
SECTION 3.1 Authority Relative to the Agreement........................... 6
SECTION 3.2 Capitalization................................................ 6
SECTION 3.3 No Violation.................................................. 6
SECTION 3.4 Consents and Approvals........................................ 7
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDER
SECTION 4.1 Organization, Qualification and Capitalization................ 7
SECTION 4.2 Authority Relative to the Agreement........................... 8
SECTION 4.3 No Violation.................................................. 8
SECTION 4.4 Consents and Approvals........................................ 8
SECTION 4.5 Regulatory Reports............................................ 8
SECTION 4.6 Financial Statements.......................................... 9
SECTION 4.7 Absence of Changes............................................ 10
SECTION 4.8 Indebtedness.................................................. 11
SECTION 4.9 Litigation.................................................... 11
SECTION 4.10 Tax Matters................................................... 12
SECTION 4.11 Employee Benefit Plans........................................ 13
SECTION 4.12 Employment Matters............................................ 14
SECTION 4.13 Patents, Trademarks and Copyrights............................ 15
SECTION 4.14 Environmental Matters......................................... 15
SECTION 4.15 Title to Properties; Encumbrances............................. 17
SECTION 4.16 Sufficiency of Assets......................................... 17
SECTION 4.17 Permits and Licenses.......................................... 17
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TABLE OF CONTENTS
(CONTINUED)
SECTION 4.18 Agreements, Contracts and Commitments................................... 17
SECTION 4.19 Compliance with Law..................................................... 18
SECTION 4.20 Insurance............................................................... 18
SECTION 4.21 Disclosure.............................................................. 18
SECTION 4.22 Brokers Commission or Finder's Fee...................................... 18
SECTION 4.23 Transactions with Affiliates............................................ 19
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVESTOR
SECTION 5.1 Organization and Authority.............................................. 19
SECTION 5.2 Authority Relative to the Agreement..................................... 19
SECTION 5.3 No Violation............................................................ 20
SECTION 5.4 Consents and Approvals.................................................. 20
SECTION 5.5 Financing............................................................... 20
SECTION 5.6 Brokers Commission or Finder's Fee...................................... 20
ARTICLE VI
COVENANTS OF CORPORATION
SECTION 6.1 Affirmative Covenants of Corporation.................................... 20
SECTION 6.2 Negative Covenants of Corporation....................................... 21
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Continuing Employees and Employee Benefit Plans......................... 23
SECTION 7.2 Access To, and Information Concerning, Properties and Records........... 25
SECTION 7.3 Good Faith Efforts...................................................... 26
SECTION 7.4 HSR Filing.............................................................. 26
SECTION 7.5 Exclusive Nature of Agreement........................................... 26
SECTION 7.6 Accounting Treatment.................................................... 26
SECTION 7.7 Payment Approvals....................................................... 27
SECTION 7.8 Additional Financial Statements......................................... 27
SECTION 7.9 Tax Matters............................................................. 27
SECTION 7.10 New Stock Option Plan................................................... 30
SECTION 7.11 Directors' and Officers' Indemnifications............................... 30
SECTION 7.12 Option to Purchase...................................................... 32
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Each Party's Obligation................................... 32
SECTION 8.2 Conditions to the Obligations of Investor............................... 32
SECTION 8.3 Conditions to the Obligations of Selling Shareholders................... 34
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TABLE OF CONTENTS
(CONTINUED)
ARTICLE IX
TERMINATION
SECTION 9.1 Termination............................................................. 35
SECTION 9.2 Effect of Termination................................................... 36
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnification......................................................... 36
SECTION 10.2 Limitations on Claims................................................... 38
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses................................................................ 40
SECTION 11.2 Governing Law; Forum Selection; Consent to Service of Process........... 40
SECTION 11.3 Survival and Exclusivity of Representations and Warranties.............. 41
SECTION 11.4 Public Announcements.................................................... 42
SECTION 11.5 Consent to Merger....................................................... 42
SECTION 11.6 Entire Agreement; Assignment............................................ 42
SECTION 11.7 Amendments; Waiver; Consents............................................ 42
SECTION 11.8 Further Assurances...................................................... 43
SECTION 11.9 Severability............................................................ 43
SECTION 11.10 Notices................................................................. 43
SECTION 11.11 Governing Law........................................................... 44
SECTION 11.12 Descriptive Headings.................................................... 44
SECTION 11.13 Parties in Interest; No Third Party Beneficiary......................... 44
SECTION 11.14 Counterparts............................................................ 44
SECTION 11.15 Incorporation by Reference.............................................. 44
SECTION 11.16 Guarantee............................................................... 44
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(CONTINUED)
SCHEDULE 2.7(b) SELLING SHAREHOLDERS; ALLOCATION OF CONSIDERATION
SCHEDULE 3.3 NO VIOLATION
SCHEDULE 3.4 CONSENTS AND APPROVALS
SCHEDULE 4.1(a) AUTHORITY TO DO BUSINESS
SCHEDULE 4.1(c) CAPITALIZATION; OPTIONS; ENCUMBRANCES
SCHEDULE 4.3 CERTAIN DEFAULTS
SCHEDULE 4.4 CONSENTS AND APPROVALS
SCHEDULE 4.6 UNAUDITED 1997 FINANCIAL STATEMENTS
SCHEDULE 4.7 ABSENCE OF CHANGES
SCHEDULE 4.7(n) CAPITAL EXPENDITURE BUDGET
SCHEDULE 4.8 INDEBTEDNESS TO SHAREHOLDERS
SCHEDULE 4.9 LITIGATION
SCHEDULE 4.10 TAX MATTERS
SCHEDULE 4.11 EMPLOYEE BENEFIT PLANS
SCHEDULE 4.12 EMPLOYMENT MATTERS
SCHEDULE 4.13 PATENTS, TRADEMARK AND COPYRIGHTS
SCHEDULE 4.14 ENVIRONMENTAL MATTERS
SCHEDULE 4.15 TITLE TO PROPERTIES AND ENCUMBRANCES
SCHEDULE 4.16 SOFTWARE/HARDWARE YEAR 2000 ISSUES
SCHEDULE 4.17 PERMITS AND LICENSES
SCHEDULE 4.18 MATERIAL CONTRACTS
SCHEDULE 4.20 INSURANCE POLICIES
SCHEDULE 4.23 TRANSACTIONS WITH AFFILIATES
SCHEDULE 5.5 FINANCING COMMITMENTS
SCHEDULE 8.2(m) TRADEMARKS
SCHEDULE 8.3(c) PERSONAL GUARANTIES
SCHEDULE 8.3(d) FINANCIAL INSTITUTION AND THIRD-PARTY INDEBTEDNESS
SCHEDULE 8.3(e) MAJOR SHAREHOLDER INDEBTEDNESS
SCHEDULE 8.3(g) OPTIONS
SCHEDULE 10.1(a) REAL ESTATE LIMITED PARTNERSHIPS
EXHIBIT A CERTIFICATE OF MERGER
EXHIBIT B PREFERRED STOCK TERM SHEET
EXHIBIT C WARRANT TERM SHEET
EXHIBIT D 1998 STOCK OPTION PLAN TERM SHEET
EXHIBIT E SHAREHOLDER AGREEMENT TERM SHEET
EXHIBIT F OPINION OF CORPORATION'S COUNSEL
EXHIBIT G NON-COMPETITION AGREEMENT
EXHIBIT H LEASE AMENDMENT TERM SHEET
EXHIBIT I-1 TRADEMARK ASSIGNMENT AGREEMENT
EXHIBIT I-1.1 ASSIGNMENT OF REGISTERED TRADEMARKS
EXHIBIT I-2 TRADEMARK LICENSE AGREEMENT
EXHIBIT J OPINION OF INVESTOR'S COUNSEL
EXHIBIT K AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
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TABLE OF CONTENTS
(CONTINUED)
v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("AGREEMENT") is entered into as of May
5, 1998, by and among Century Acquisition Corporation, a Delaware corporation
("INVESTOR"), Century Maintenance Supply, Inc., a Delaware corporation (the
"CORPORATION"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the "MAJOR SHAREHOLDER") and the other
shareholders of the Corporation set out on Schedule 2.7(b) of this Agreement
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(the Major Shareholder and the other shareholders of the Corporation are herein
collectively referred to as the "SELLING SHAREHOLDERS") and for purposes of
Sections 11.3 and 11.16 of this Agreement, FS Equity Partners IV, a Delaware
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limited partnership and the sole shareholder of Investor ("FSEP IV").
A. The Board of Directors of Investor and the Board of Directors of the
Corporation each have determined that it is in the best interests of their
respective stockholders for Investor to merge with the Corporation upon the
terms and subject to the conditions set out herein.
B. In the Merger the Selling Shareholders will each have a portion of
their shares of Corporation Common Stock (as defined below) converted into the
right to receive the Cash Merger Consideration (as defined below) and will also
retain shares of Corporation Common Stock, all as specified and set out on
Schedule 2.7(b) of this Agreement. The Major Shareholder and his affiliates
will retain a smaller portion of their shares of Corporation Common Stock than
the remaining Selling Shareholders and may receive up to $7,000,000 in
liquidation preference of the Corporation's New Preferred Stock (as defined
below) in lieu of Cash Merger Consideration.
C. The Corporation and Investor desire to make certain representations,
warranties, covenants and agreements in connection with the aforesaid merger of
the Corporation and, for purposes thereof, have entered into this Agreement.
NOW, THEREFORE, in consideration of the recitals and the respective
representations, warranties and covenants contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions. For the purposes of this Agreement,
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the following terms shall have the meanings specified or referred to below
whether or not capitalized when used in this Agreement.
(a) "KNOWLEDGE" or "KNOWN" -- the Corporation shall be deemed to have
"KNOWLEDGE" of or to have "KNOWN" a particular fact or other matter if any
of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (▇▇▇▇▇▇▇), ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, R. ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇ ▇. ▇▇▇▇▇▇ (with
respect to ▇▇. ▇▇▇▇▇▇, the Corporation shall be deemed to have knowledge
only of facts or matters which have become known to ▇▇. ▇▇▇▇▇▇ after the
Corporation's acquisition of Nationwide (as defined in Section 4.6)) has
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current, actual
knowledge of such fact or other matter, or would have such knowledge after
completion of a reasonably comprehensive review of the matter at issue.
(b) "LAW" means any law, ordinance, rule, regulation, statute, decree,
permit, treaty, code, arbitration award, order, judgment, writ, injunction,
decree or other legal requirement of any federal, state, local or foreign
court or other governmental authority.
(c) "MATERIAL ADVERSE EFFECT" shall mean any fact, event, change or
occurrence which, individually or in the aggregate, has a material adverse
effect on the business, financial condition, results of operations, assets
or liabilities of the Corporation and the Subsidiaries taken as a whole (or
when the reference is to Investor, Investor and its parent entity taken as
a whole).
(d) "TAX" and "TAXES" means all federal, state, local or foreign
income, gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, withholding or similar
taxes imposed on the income, properties or operations of the Corporation
and the Subsidiaries, together with any interest, additions or penalties
with respect thereto and any interest in respect of such additions or
penalties.
ARTICLE II
THE MERGER; CLOSING; EFFECTIVE TIME
SECTION 2.1 The Merger. Subject to the terms and conditions of this
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Agreement, at the Effective Time (as defined in Section 2.3) the Investor shall
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be merged with and into the Corporation and the separate corporate existence of
the Investor shall thereupon cease (the "MERGER"). The Corporation shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
"SURVIVING CORPORATION") and shall continue to be governed by the laws of the
State of Delaware. The separate corporate existence of the Corporation with all
of its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, and the Corporation shall succeed, without other
transfer, to all of the rights and properties of the Investor and shall be
subject to all of the debts and liabilities of the Investor. The Merger shall
have the effects specified in the General Corporation Law of Delaware (the
"GCL").
SECTION 2.2 Closing. The closing of the Merger (the "CLOSING") shall
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take place at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇, at 9:00 a.m., Houston time, or at such other place as the Corporation and
the Investor may agree, within three business days following the day on which
all of the conditions set out in Article VIII of this Agreement shall be
fulfilled or waived in accordance with this Agreement.
SECTION 2.3 Effective Time. The Merger shall become effective at the
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time of filing a certificate of merger substantially in the form attached hereto
as Exhibit A (the "CERTIFICATE OF MERGER") with the Secretary of State of the
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State of Delaware in accordance with the provisions of Section 251 of the GCL,
which Certificate of Merger shall be delivered to the Secretary of State of the
State of Delaware for filing within three business days following the day on
which the last of the conditions set out in Article VIII of this Agreement shall
have been fulfilled or waived in accordance with this Agreement. The date and
time on which the Merger shall become effective is herein referred to as the
"EFFECTIVE TIME".
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SECTION 2.4 Certificate of Incorporation. Prior to the Effective Time,
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the Major Shareholder and the Corporation shall take all action necessary to (a)
amend and restate the Certificate of Incorporation of the Corporation to, among
other things, (i) increase the number of authorized shares of capital stock,
(ii) authorize preferred stock for issuance, and create and authorize the
preferred stock (the "NEW PREFERRED STOCK"), which will be authorized as "BLANK
CHECK" preferred and when issued will have substantially the same rights,
preferences and privileges as the preferred stock of Investor set out in the
term sheet and subject to modification as set out therein (the "PREFERRED STOCK
TERM SHEET") attached as Exhibit K hereto, and (iii) amend Article X thereof in
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the manner described in Section 7.11 of this Agreement, and such Certificate of
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Incorporation of the Corporation as so amended and restated shall be the
Certificate of Incorporation of the Surviving Corporation until duly amended in
accordance with the terms thereof and the GCL, and (b) to effect a stock split
of one to 2.30068 (the "STOCK SPLIT") of the common stock, $.001 par value of
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the Corporation ("CORPORATION COMMON STOCK"), which Stock Split shall become
effective immediately after consummation of the Merger and the payment of the
Cash Merger Consideration and the conversion of the Investor shares into
Corporation Common Stock pursuant to Section 2.7(f).
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SECTION 2.5 By-Laws. The By-Laws of the Corporation in effect at the
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Effective Time shall be the By-Laws of the Surviving Corporation until duly
amended in accordance with the terms thereof and the GCL.
SECTION 2.6 Officers and Directors. The officers of the Corporation at
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the Effective Time shall be the officers of the Surviving Corporation. As of
the Effective Time, the Major Shareholder and FSEP IV agree to elect the
following individuals as directors of the Surviving Corporation: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, J. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, and two other individuals designated by Major Shareholder.
Such directors and officers shall remain as such until their successors have
been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-Laws and applicable laws, and the expiration
of the term of, or any termination of, any employment agreement entered into
with any such person which entitles such person to serve as an officer or
director.
SECTION 2.7 Conversion and Cancellation of Shares. At the Effective
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Time, by virtue of the Merger:
(a) Except as set out in Section 2.7(b) and (c) below, each share of
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Corporation Common Stock, issued and outstanding immediately prior to the
Effective Time (the "SHARES"), without giving effect to the Stock Split,
shall without any action on the part of the holder thereof, be converted
into the right to receive, without interest, an amount in cash equal to
$23.0068 (the "CASH MERGER CONSIDERATION").
(b) Each of the Shares as shown on Schedule 2.7(b) set out opposite
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each Selling Shareholders name under the column "Retained Shares" on
Schedule 2.7(b) shall remain outstanding and immediately after the
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consummation of the Merger and payment of the Cash Merger Consideration,
shall be adjusted for the Stock Split and shall become 2.30068 shares of
Corporation Common Stock (the "RETAINED SHARES").
(c) Subject to the terms of this Section 2.7(c), a portion of the Cash
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Merger Consideration payable to the Major Shareholder as shown on Schedule
2.7(b), without
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giving effect to the Stock Split, may be paid with shares of the
Corporation's New Preferred Stock having a liquidation preference of up to
$7,000,000 in accordance with the Preferred Stock Term Sheet (the
"PREFERRED STOCK MERGER CONSIDERATION"). The New Preferred Stock will have
an aggregate liquidation preference of up to $44.5 million (reduced to the
extent that funding requirements are less than anticipated, as determined
by Investor, as a result of the Corporation's performance) as contemplated
in the Preferred Stock Term Sheet. In order to accommodate the requirements
of third party investors, the preferred stock described in the Preferred
Stock Term Sheet may be issued by Investor or by the Corporation. The
aggregate liquidation preference of preferred stock or New Preferred Stock
will be $44.5 million (subject to reduction as provided above). To the
extent that $7,000,000 or more of such preferred stock or New Preferred
Stock remains unsold to third party investors, Major Shareholder shall
receive New Preferred Stock having a liquidation preference of $7,000,000
and if less than $7,000,000 of preferred stock or New Preferred Stock
remains unsold to third party investors, Major Shareholder shall receive a
combination of New Preferred Stock and cash up to a value of $7,000,000.
The Cash Merger Consideration otherwise payable to the Major Shareholder
shall be reduced by the amount of the liquidation preference of any New
Preferred Stock issued to the Major Shareholder pursuant to this Section
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2.7(c).
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(d) All Shares (other than the Retained Shares) shall without any
action on the part of the holders thereof cease to be outstanding and shall
be canceled and retired and shall cease to exist, and each holder of a
certificate representing any such Shares shall thereafter cease to have any
rights with respect to such Shares, except the right of holders to receive
the Cash Merger Consideration and Preferred Stock Merger Consideration for
each outstanding Share upon the surrender of such certificate in accordance
with Section 2.7.
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(e) Each Share owned by the Corporation shall without any action on
the part of the holder thereof cease to be outstanding, shall be canceled
and retired without payment of any consideration therefor and shall cease
to exist.
(f) Each share of common stock, $.01 par value, of Investor issued and
outstanding immediately prior to the Effective Time shall without any
action on the part of the holder thereof be converted into one share of
Corporation Common Stock and immediately after such conversion shall be
adjusted for the Stock Split.
(g) Each share of the preferred stock, $.01 par value, of the Investor
held by FSEP IV, Major Shareholder, or third-party investors issued and
outstanding immediately prior to the Effective Time shall without any
action on the part of the holder thereof be converted into one share of New
Preferred Stock.
(h) Each warrant to acquire common stock, $.01 par value, of the
Investor outstanding immediately before the Effective Time (the "INVESTOR
WARRANTS"), which will have substantially the same terms and conditions set
out in the term sheet (the "WARRANT TERM SHEET") attached hereto as Exhibit
C, shall without any action on the part of the holder thereof be converted
into a warrant to acquire Shares of the Common Stock of the Surviving
Corporation at the exercise price and on the terms and conditions as set
out in the terms of the Investor Warrants, subject to the modification
thereof as described in the Modification section of the Warrant Term Sheet.
The Corporation will also directly issue the Investor Warrants to third
party investors if necessary to meet the requirements of such investors.
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SECTION 2.8 Employee Stock Options. The Corporation will use its
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commercially reasonable efforts to enter into agreements with the holders of any
outstanding employee options to purchase Corporation Common Stock granted under
the Corporation's 1997 Incentive Stock Plan ("OPTIONS"), which agreements will
provide that they shall be treated as follows: (i) if a holder has been granted
Options to purchase fewer than 1,500 shares of Corporation Common Stock, such
Options shall be canceled, for the right to receive at the Effective Time an
amount in cash equal to the product of (x) the excess of the Cash Merger
Consideration over the exercise price per share of such Option, and (y) the
number of shares of Corporation Common Stock subject to such Option prior to the
Stock Split (such product to be the "CASH OPTION CONSIDERATION"); and (ii) if a
holder has been granted Options to purchase 1,500 or more shares of Corporation
Common Stock, fifty percent (50%) of such Options shall be canceled, for the
right to receive at the Effective Time the Cash Option Consideration with
respect to such Options prior to the Stock Split and fifty percent (50%) of such
Options shall remain outstanding. If the holders of fewer than 168,750 options
(prior to the Stock Split) enter into agreements under which they retain Options
or otherwise elect to retain Options, the Major Shareholder agrees to increase
the number of Retained Shares held by him pursuant to Section 2.7(b) above
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prior to the Stock Split, by the number of Shares equal to the difference
between 168,750 and, prior to the Stock Split, the number of Options which will
remain outstanding after the Effective Time as Options to purchase Corporation
Common Stock. The Surviving Corporation shall perform in all respects its
obligations under the Option.
SECTION 2.9 Payment for Shares and Options.
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(a) On the date of the Effective Time, the Surviving Corporation
shall, by wire transfer or check of the Corporation, as requested by each
of the Selling Shareholders, make the payments pursuant to Section 2.7(a)
of the Cash Merger Consideration, and if applicable pursuant to Section
2.7(c), of the Preferred Stock Merger Consideration. The Cash Option
Consideration shall be paid promptly after the Effective Time by check of
the Corporation.
(b) No interest will be paid or will accrue on the amount payable upon
the surrender of any certificate or Option, whether or not such certificate
or Option was surrendered for the Cash Merger Consideration, the Preferred
Stock Merger Consideration or the Cash Option Consideration, as the case
may be. The Cash Option Consideration shall only be payable to the
optionee. If payment is to be made to a person other than the registered
holder of the certificate surrendered, it shall be a condition of such
payment that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, as determined by the Surviving
Corporation, and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment to a person other
than the registered holder of the certificate surrendered or establish to
the satisfaction of the Surviving Corporation that such tax has been paid
or is not payable.
SECTION 2.10 Transfer of Shares after the Effective Time. No transfers
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of Shares shall be made on the stock transfer books of the Surviving Corporation
at or after the Effective Time. If, after the Effective Time, certificates
representing Shares are presented to the Surviving Corporation, they shall be
canceled and exchanged for the Cash Merger Consideration and Preferred Stock
Merger Consideration as set out in Section 2.7 above.
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SECTION 2.11 No Fractional Shares. The Corporation shall not be required
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to issue fractional shares of Corporation Common Stock in respect of the
Retained Shares prior to adjustment
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for the Stock Split or in respect of the Retained Shares after giving effect to
the Stock Split. If any fraction of a share of Corporate Common Stock would,
except for the provisions of this Section, be issuable upon the consummation of
the Merger without giving effect to the Stock Split, the Corporation shall pay
an amount in cash calculated by it to be equal to the Cash Merger Consideration
for one share of Corporation Common Stock at the Effective Time multiplied by
such fraction computed to the nearest whole cent. If any fraction of a share of
Corporate Common Stock would, except for the provisions of this Section, be
issuable after giving effect to the Stock Split, the Corporation shall not issue
fractional shares or pay cash for such fractional share. The Corporation shall
round down to the nearest whole share of Corporate Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
Each Selling Shareholder, severally but not jointly, makes the
representations and warranties set out in this Article III to Investor and FSEP
IV.
SECTION 3.1 Authority Relative to the Agreement. Each Selling
-----------------------------------
Shareholder has full power and authority to execute, deliver and perform this
Agreement and the other documents contemplated herein, and no further action or
proceeding on the part of each Selling Shareholder is necessary to consummate
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each Selling Shareholder, and this Agreement
constitutes the legal, valid and binding obligation of each Selling Shareholder
enforceable against each Selling Shareholder in accordance with its terms,
subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or
other similar laws relating to creditors' rights generally and general equitable
principles.
SECTION 3.2 Capitalization. Each of the Selling Shareholders are, on
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the date of this Agreement, the record and beneficial owners and holders of the
Shares set out by their respective names on Schedule 2.7(b), and, except as set
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out in the Shareholders Agreement among the Corporation, Major Shareholder and
the Selling Shareholders dated June 30, 1997 (a) each has good and valid title
to such Shares free and clear of any lien, charge, claim, equitable interest,
option, security interest, right of first refusal, preemptive right or
restriction of any kind (collectively, an "ENCUMBRANCE"). and (b) each of the
Selling Shareholders has the absolute and unrestricted right, power, authority
and capacity to transfer such Shares at the Closing.
SECTION 3.3 No Violation. Neither the execution, delivery nor
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performance of this Agreement or the other documents contemplated herein, nor
the consummation of the transactions contemplated hereby or thereby (including
the Merger) will, as of the date of this Agreement (i) violate any law, order,
writ, judgment, injunction, award, decree, rule, statute, ordinance or
regulation applicable to a Selling Shareholder, (ii) except as set out in
Schedule 3.3, be in conflict with, result in a breach or termination of any
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provision of, cause the acceleration of the maturity of any debt or obligation
pursuant to, constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, require the consent under, or result in the
creation of any security interest, lien, charge or other encumbrance upon any
property of a Selling Shareholder pursuant to, any terms, conditions or
provisions of any note, license, instrument, indenture, mortgage, deed of trust,
contract, lease, or other agreement or understanding or any other restriction of
any kind or character, to which any of the Selling Shareholders is a party or by
which any of their properties is subject or bound, or (iii) with respect to
Selling Shareholders that are not individuals, conflict with
6
or result in any breach of any provision of the charter or other organizational
documents or bylaws of such Selling Shareholder.
SECTION 3.4 Consents and Approvals. Except as described on Schedule 3.4
---------------------- ------------
hereto, and except for termination of the waiting period under the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), no prior
consent, approval or authorization of, or declaration, filing or registration
with, any person, domestic or foreign, or any federal, state or local government
agency or body of any type (a "GOVERNMENTAL AUTHORITY"), is required of or by
any Selling Shareholder in connection with the execution, delivery and
performance by such Selling Shareholder of this Agreement and consummation of
the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MAJOR SHAREHOLDER
The Major Shareholder hereby makes the representations and warranties set
out in this Article IV to Investor and FSEP IV.
----------
SECTION 4.1 Organization, Qualification and Capitalization.
----------------------------------------------
(a) Each of the Corporation and the subsidiaries of the Corporation,
all of which are listed on Schedule 4.1(a) hereto (collectively, the
---------------
"SUBSIDIARIES"), is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each of
the Corporation and the Subsidiaries has all requisite corporate power and
authority to carry on its business as it is now being conducted, to own,
lease and operate its properties and assets, and to perform all its
obligations under the agreements and instruments to which it is a party or
by which it is bound. Each of the Corporation and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which the properties
and assets owned, leased or operated by it or the nature of the business
conducted by it make such qualification necessary, except where the failure
to be so qualified would not have a Material Adverse Effect. Each such
jurisdiction in which each Corporation and the Subsidiaries is so qualified
is listed on Schedule 4.1(a).
---------------
(b) True, correct and complete copies of the charter documents and
bylaws of each of the Corporation and the Subsidiaries, with all amendments
thereto through the date of this Agreement, have been delivered by
Corporation to Investor.
(c) As of the date of this Agreement, the authorized capital stock and
the issued and outstanding capital stock of the Corporation and each of the
Subsidiaries is as set out on Schedule 4.1(c). Schedule 4.1(c) lists each
--------------- ---------------
holder of such shares of capital stock and the number of shares owned by
each such holder. Except as set out on Schedule 4.1(c), there are no
---------------
outstanding subscriptions, options, phantom stock, convertible securities,
rights, warrants, calls, irrevocable proxies or other agreements or
commitments of any kind directly or indirectly obligating the Corporation
and the Subsidiaries to issue any security of or equitable interest in the
Corporation or any of the Subsidiaries, or to repurchase, redeem or
otherwise acquire any such security, or irrevocable proxies or any
agreements (including shareholder agreements) restricting the transfer of
or otherwise relating to any security or equity interest in the Corporation
or any of the Subsidiaries. All of the issued and
7
outstanding shares of capital stock of the Corporation and each of the
Subsidiaries set out on Schedule 4.1(c), have been duly authorized, validly
---------------
issued and are fully paid and nonassessable. All of the shares of issued or
unissued capital stock of the Corporation and each of the Subsidiaries are
free of Encumbrances, except as set out on Schedule 4.1(c). Except as
---------------
described on Schedule 4.1(a) and Schedule 4.1(c), the Corporation does not
--------------- ---------------
own, directly or indirectly, legally or beneficially, any shares of capital
stock or any equity interest in, or otherwise control, any corporation,
partnership, joint venture or other entity or business other than the
Subsidiaries.
SECTION 4.2 Authority Relative to the Agreement. The Corporation has
-----------------------------------
full power and authority to execute, deliver and perform this Agreement and the
other documents contemplated herein, and no further corporate proceedings on the
part of the Corporation is necessary to consummate the transactions contemplated
hereby, which have been duly and validly authorized and approved by the
Corporation's board of directors and shareholders. This Agreement has been duly
and validly executed and delivered by the Corporation, and this Agreement
constitutes the legal, valid and binding obligation of the Corporation
enforceable against the Corporation in accordance with its terms, subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
laws relating to creditors' rights generally and general equitable principles.
SECTION 4.3 No Violation. Neither the execution, delivery nor
------------
performance of this Agreement and the other documents contemplated herein, nor
the consummation of the transactions contemplated hereby and thereby will, as of
the date of this Agreement (i) violate any law, order, writ, judgment,
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Corporation and the Subsidiaries or the Major Shareholder, (ii) except as
set out on Schedule 4.3, be in conflict with, result in a breach or termination
------------
of any provision of, cause the acceleration of the maturity of any debt or
obligation pursuant to, constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, require the consent under, or
result in the creation of any security interest, lien, charge or other
encumbrance upon any property of the Corporation or the Subsidiaries pursuant
to, any terms, conditions or provisions of any note, license, instrument,
indenture, mortgage, deed of trust, contract, lease or other agreement or
understanding or any other restriction of any kind or character, to which any of
the Corporation or the Subsidiaries is a party or by which any of the properties
of the Corporation or the Subsidiaries are subject or bound, or (iii) conflict
with or result in any breach of any provision of the charter documents or bylaws
of the Corporation or the Subsidiaries.
SECTION 4.4 Consents and Approvals. Except as described on Schedule 4.4
---------------------- ------------
hereto, and except for termination of the waiting period under HSR Act, no prior
consent, approval or authorization of, or declaration, filing or registration
with any person, domestic or foreign, or any Governmental Authority, is required
of or by the Corporation and the Subsidiaries in connection with the execution,
delivery and performance by Corporation of this Agreement and their consummation
of the transactions contemplated hereby.
SECTION 4.5 Regulatory Reports. Each of the Corporation and the
------------------
Subsidiaries has filed all reports, registrations and statements, together with
any amendments required to be made thereto, that are required to be filed with
any Governmental Authority having jurisdiction over it except for those filings
which, if not made, would not result in a Material Adverse Effect.
8
SECTION 4.6 Financial Statements. Attached hereto as Schedule 4.6 is
-------------------- ------------
(a) a true and complete copy of the unaudited consolidated balance sheet of the
Corporation and the Subsidiaries as of December 31, 1997 and the related
consolidated statement of income , shareholders equity, and cash flows for the
year then ended, which financial statements give effect to the acquisition of
Nationwide Apartment Supply, Inc. and Fairview Wholesale Supply, Inc.
(collectively, "NATIONWIDE") by the Corporation in 1997 as of the date of such
acquisition (the "UNAUDITED 1997 FINANCIAL STATEMENTS") and (b) a true and
complete copy of the draft pro forma consolidated results of operations for the
year ended December 31, 1997 as though the Corporation had acquired Nationwide
and the minority interests of the various Subsidiaries as of January 1, 1997
(the "DRAFT 1997 PRO FORMAS"). The audited consolidated balance sheet of the
Corporation and the Subsidiaries as of December 31, 1997 and the related audited
consolidated statements of income, shareholders equity and cash flows for the
year then ended to be delivered to Investor on or prior to May 7, 1998 with
Ernst & Young's unqualified opinion thereon (the "AUDITED 1997 FINANCIAL
STATEMENTS") will not differ in any respect from the Unaudited 1997 Financial
Statements. The final pro forma consolidated results of operations for the year
ended December 31, 1997 as though the Corporation had acquired Nationwide and
the minority interests of the various Subsidiaries as of January 1, 1997 to be
delivered to Investor on or before May 8, 1998 with Ernst & Young's examination
report thereon (the "FINAL 1997 PRO FORMAS") will not differ in any material
adverse respect, with respect to the pro forma adjustments themselves, from the
pro forma adjustments in the Draft 1997 Pro Formas. The consolidated balance
sheet of the Corporation and the Subsidiaries as of December 31, 1996, and the
consolidated statements of income, shareholders equity and cash flow for the
years ended December 31, 1995 and December 31, 1996 to be delivered to Investor
on or prior to May 5, 1998 which have been retroactively restated to reflect
Major Shareholder's contribution to the Corporation of the San Antonio and
Austin, Texas maintenance, repair and operation supplies business and the sale
of the Corporation's Air Management air conditioning supply locations' net
assets for cash (the "1996 AND 1995 RESTATED FINANCIAL STATEMENTS") will not
differ in any material respect from the historical financial results for the
same periods included in the Memorandum (as defined in Section 11.3 of this
------------
Agreement). The unaudited consolidated balance sheet of the Corporation and the
Subsidiaries as of March 31, 1998 and the related consolidated statements of
income, shareholder's equity and cash flows for the three-month period ended
March 31, 1998 reviewed by Ernst & Young are hereinafter referred to as the
"MARCH 31, 1998 FINANCIAL STATEMENTS." Corporation has also provided Investor
with true and complete copies of the audited consolidated balance sheet of the
Corporation and the Subsidiaries (which do not reflect the acquisition of
Nationwide and the acquisition of the minority interests of the Subsidiaries) as
of December 31, 1993, 1994, 1995 and 1996 and the related audited consolidated
statements of income, shareholders equity and cash flows for each of the years
then ended (collectively, together with the Unaudited 1997 Financial Statements,
the Draft 1997 Pro Formas and when delivered, the Audited 1997 Financial
Statements, the Final 1997 Pro Formas, the 1996 and 1995 Restated Financial
Statements and the March 31, 1998 Financial Statements are referred to as the
"FINANCIAL STATEMENTS"). The Financial Statements fairly present, in all
material respects, the consolidated financial condition of the Corporation and
the Subsidiaries and the results of operations at the dates and for the periods
indicated, have been prepared in accordance with GAAP applied on a consistent
basis except as set out on Schedule 4.6 (except that the Unaudited 1997
------------
Financial Statements and the March 31, 1998 Financial Statements are unaudited
and therefore do not have certain notes otherwise required by GAAP), were
prepared in accordance with the books and records of the Corporation and its
Subsidiaries, and were prepared in accordance with regulation S-X promulgated
under the Securities Act of 1933, as amended ("REGULATION S-X"). Except as set
out in this Agreement or the schedules hereto, the Corporation and the
Subsidiaries have no liabilities except
9
as set out in the Financial Statements or arising in the ordinary course of
business after December 31, 1997.
SECTION 4.7 Absence of Changes. Except as and to the extent set out on
------------------
Schedule 4.7, or as expressly provided for in this Agreement, since December 31,
------------
1997, none of the Corporation nor the Subsidiaries have directly or indirectly:
(a) made any amendment to its charter documents or bylaws or changed
the character of its business in any material manner;
(b) suffered any Material Adverse Effect;
(c) entered into or amended, canceled or terminated any agreement,
license, commitment or transaction, except in the ordinary course of
business or except in connection with the transactions contemplated by this
Agreement;
(d) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this
Article IV in the future so that any such representation would not be true
in all material respects as of the date of this Agreement;
(e) made any declaration, setting aside, or payment of any dividend or
other distribution in respect of its capital stock, or any direct or
indirect redemption, recapitalization, purchase or other acquisition by it
of such stock;
(f) effected any increase in the compensation paid or payable by
Corporation or any Subsidiary, other than in the ordinary course of
business and consistent with past practices, to any of their respective
directors, officers or employees, or entered into any employment,
consulting or severance agreement, or any other agreement (or termination
of, or amendment to any agreement), other than in the ordinary course of
business and consistent with past practices, with any present or former
director, officer or other employee of Corporation or any of its
Subsidiaries;
(g) effected any issuance, transfer, sale or pledge by Corporation or
any Subsidiary of its capital stock or any other equity interest or of any
commitments, options, warrants, rights or privileges under which
Corporation or the Subsidiary is or may become obligated to issue any
shares of its capital stock or any other equity interest;
(h) incurred any liability, indebtedness, commitment or obligation
(excluding intercompany transactions solely between the Corporation and the
Subsidiaries), except such as may have been incurred or entered into in the
ordinary course of business and consistent with past practices;
(i) made or agreed to make any loan, capital contribution, or advance
(excluding intercompany transactions solely between the Corporation and the
Subsidiaries), or become liable or agreed to become liable as a guarantor
with respect to any obligation of a third party except for advances to
employees for reimbursable business expenses entered into in the ordinary
course of business and consistent with past practices;
10
(j) adopted, amended or entered into any bonus, profit sharing, stock
option, pension, retirement, severance, deferred compensation or other
employee benefit plan or agreement (including, without limitation, the
grant of stock options, stock appreciation rights, performance awards or
restricted stock awards);
(k) entered into or committed to enter into any transaction between
Corporation or the Subsidiaries, on the one hand, and any Related Party, on
the other hand, other than purchases of supplies by Corporation from
Century Air Conditioning Supply, Inc. as set out on Schedule 4.7;
------------
(l) effected any material change in the accounting methods, practices
or policies followed by Corporation (other than as required by GAAP), any
material increase in reserves or any material revaluation of any of their
assets from those in effect during the past three fiscal years;
(m) effected any acquisition (whether by merger, consolidation,
acquisition of stock or assets or otherwise) of any corporation,
partnership or other business organization or division thereof;
(n) made any capital expenditure in excess of $1.0 million, other than
in accordance with Corporation's capital expenditure budget for the fiscal
year ending December 31, 1998, a copy of which is attached as Schedule
--------
4.7(n);
------
(o) effected any change in any election for Tax purposes, or entered
into any agreement (or amendment to any agreement) to (i) make or not make
any election for Tax purposes, or (ii) claim or not claim any particular
item of income, gain, loss, deductions or credit for tax purposes; or
(p) made any agreement or commitment to do any of the foregoing.
SECTION 4.8 Indebtedness. The Corporation has delivered to Investor
------------
true and complete copies of all loan documents related to the indebtedness of
Corporation and the Subsidiaries. Schedule 4.8 hereto lists all indebtedness of
------------
the Corporation and the Subsidiaries to the Selling Shareholders.
SECTION 4.9 Litigation. Except as set out on Schedule 4.9, (a) there
---------- ------------
are no actions, suits, claims, investigations, reviews or other proceedings
pending or, to the knowledge of the Corporation, threatened against the
Corporation or any of the Subsidiaries or any Selling Shareholder or involving
any of the employees, former employees, properties or assets of the Corporation
or any of the Subsidiaries or any Selling Shareholder, at law or in equity or
before or by any foreign, federal, state, municipal, or other governmental
court, department, commission, board, bureau, agency, or other instrumentality
or person or any board of arbitration or similar entity which could result in a
Material Adverse Effect or could reasonably be expected to prevent, hinder or
delay consummation of the transactions contemplated by this Agreement, declare
the same unlawful or cause the rescission thereof, and (b) there are no
judgments, decrees, injunctions, rules or orders of any Governmental Authority
outstanding against the Corporation or any of the Subsidiaries or any Selling
Shareholder which could result in a Material Adverse Effect.
11
SECTION 4.10 Tax Matters.
-----------
(a) Each of the Corporation and the Subsidiaries has timely filed, or
will timely file, all Tax returns required to be filed by it prior to the
Closing, and each of such returns is, or will be, correct and complete in
all material respects.
(b) All Taxes shown to be due on each of the Tax returns specified in
Section 4.10(a) have been, or will be, timely and appropriately paid.
---------------
(c) Reserves adequate for the payment of all Taxes of each the
Corporation and the Subsidiaries with respect to any period or portion
thereof ending on or prior to the date of this Agreement for which Tax
returns have not yet been filed have been established, and such reserves
will continue to be established with respect to any period or portion
thereof ending on or prior to the Closing.
(d) No liens for Taxes exist with respect to any assets or properties
of any of the Corporation and the Subsidiaries, except for statutory liens
for Taxes not yet due.
(e) Except as set out in Schedule 4.10, none of the Tax returns of any
-------------
of the Corporation and the Subsidiaries have been audited or examined or is
being audited or examined by any taxing authority.
(f) Except as set out in Schedule 4.10, no assessment, audit or other
-------------
proceeding by any taxing authority is proposed, pending, or, to the
knowledge of the Corporation, threatened with respect to any Taxes or Tax
returns of any of the Corporation and the Subsidiaries.
(g) Except as set out in Schedule 4.10, there are no outstanding
-------------
agreements, waivers, or arrangements extending the statutory period of
limitations applicable to any claim for the period for the collection or
assessment of any Taxes of any of the Corporation and the Subsidiaries due
for any taxable period.
(h) No consent to the application of Section 341(f)(2) of the Internal
Revenue Code of 1986, as amended (the "CODE") has been made or filed by or
with respect to any of the Corporation and the Subsidiaries or any of their
assets and properties.
(i) Except as set out in Schedule 4.10, the Corporation and the
-------------
Subsidiaries have not taken any action that would require an adjustment
pursuant to Section 481 of the Code by reason of a change in accounting
method or otherwise.
(j) There have not been, nor will there be from the date of this
Agreement through and including the Closing date, any payments, or any
agreements to make payments, which are contingent upon, or related to, the
transactions contemplated hereunder and which would be "EXCESS PARACHUTE
PAYMENTS" under Section 280G of the Code.
(k) The Corporation and the Subsidiaries are not a party to any tax
sharing or tax allocation agreement.
12
(l) The Corporation and the Subsidiaries have not executed or entered
into any closing agreement pursuant to Section 7121 of the Code, or any
predecessor provisions thereof or any similar provision of state or other
law.
(m) Schedule 4.10 of this Agreement sets forth (i) a list of each
-------------
Subsidiary which (A) filed, within the past five years, its return for
federal income tax purposes as part of the consolidated return of which the
Corporation, or any predecessor, was the parent corporation and (B)
subsequently ceased filing its return as part of such consolidated return,
and (ii) the last year in which each such Subsidiary so filed on a
consolidated basis.
SECTION 4.11 Employee Benefit Plans.
----------------------
(a) The Corporation has set out in Schedule 4.11 the names and current
-------------
base salaries for all employees of the Corporation and the Subsidiaries as
of December 31, 1997 with base salaries in excess of $75,000 per annum.
(b) The Corporation has delivered to Investor (i) copies of the
health, dental and life insurance plans, bonus, deferred compensation,
pension, profit sharing and retirement plans and all other employee benefit
plans, programs or arrangements providing benefits for employees, former
employees, officers, directors, agents, and consultants, whether or not the
plan, program, or arrangement is subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"), of the Corporation and the Subsidiaries
(the "BENEFIT PLANS"); (ii) a copy of the most recent favorable
determination letter received with respect to a Benefit Plan from the
Internal Revenue Service (if the Benefit Plan is intended to be a tax-
qualified plan under the Code); (iii) the most recent annual report (Form
5500) filed with the Internal Revenue Service with respect to each Benefit
Plan (if any such report was required); and (iv) the most recent summary
plan description for each Benefit Plan for which a summary plan description
is required.
(c) If applicable, each of the Benefit Plans has been administered and
maintained in material compliance with the requirements of ERISA, and, if
applicable, the Code, and all other applicable laws. There is no
"ACCUMULATED FUNDING DEFICIENCY" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code) with respect to a Benefit Plan that is an
"EMPLOYEE PENSION BENEFIT PLAN" (as defined in Section 3(2) of ERISA, a
"PENSION PLAN"), and there has been no application for waiver of the
minimum funding standards imposed by Code Section 412 with respect to any
such plan and no event has occurred or circumstance exists that may result
in an accumulated funding deficiency as of the last day of the current year
of any Pension Plan. Except as provided in Schedule 4.11, the value,
-------------
determined on a termination basis using the actuarial assumptions stated in
the Pension Plan, of all accrued and ancillary benefits (whether or not
vested) under each Pension Plan did not exceed, as of the most recent
valuation date, and will not exceed as of the Closing Date, the then
current fair market value of the assets of the plan.
(d) All costs of administering and contributions required to be made
to each Benefit Plan under the terms of that Benefit Plan, ERISA, Code or
any other applicable law have been timely made, and all contributions are
fully deductible in the year for which the contributions were made or
accrued. There will be no material liability of the Corporation (or
Subsidiary, whichever is applicable) under any insurance policy or similar
arrangement
13
procured in connection with any Benefit Plan in the nature of a retroactive
rate adjustment, loss sharing arrangement, or other material liability
arising wholly or partially out of events occurring before the Closing.
(e) There are no pending or, to the knowledge of the Corporation,
threatened claims by or on behalf of the Benefit Plans, the United States
Department of Labor, the Internal Revenue Service, or by any current or
former employee of the Corporation and the Subsidiaries or beneficiary of
such current or former employee alleging a breach of any fiduciary duties
or a violation of applicable state or federal law which could result in a
Material Adverse Effect (other than benefit claims and funding obligations
in the ordinary course of business and qualified domestic relations orders
(as defined in Section 414(p) of the Code)), nor is there any reasonable
basis for any such claim. As of the date of this Agreement, there are no
investigations, proceedings, or lawsuits, either currently in progress or,
to the knowledge of the Corporation, expected to be instituted in the
future, relating to any Benefit Plan, by any administrative agency, whether
local, state, or federal; with respect to any investigations, proceedings
and lawsuits instituted after the date of this Agreement, the
representations and warranties of the Corporation will only be breached if
such investigations, proceedings, and lawsuits could result in a Material
Adverse Effect. The Corporation and the Subsidiaries have never
established, maintained, or contributed to, or otherwise participated in,
or had an obligation to maintain, contribute to, or otherwise participate
in, any "MULTIEMPLOYER PLAN" (as defined in Section 3(37) of ERISA). The
Corporation and the Subsidiaries have not suffered or otherwise caused a
"COMPLETE WITHDRAWAL" or "PARTIAL WITHDRAWAL," as such terms are
respectively defined in Sections 4203 and 4205 of ERISA, from any Pension
Plan that is a multiemployer plan.
(f) For purposes of this Section 4.11, the terms "CORPORATION" and
------------
"SUBSIDIARIES" shall include any entity that is aggregated with either of
them under Code Section 414(b), (c), (m), or (o).
(g) Except as provided in Schedule 4.11, neither the Corporation nor
-------------
any of the Subsidiaries maintains any plan that provides (or will provide)
medical or death benefits to one or more former employees (including
retirees), other than benefits that are required to be provided pursuant to
Code Section 4980B or state law continuation coverage or conversion rights.
(h) Except as provided in Schedule 4.11, none of the Benefit Plans or
-------------
employment contracts with the Corporation or any of the Subsidiaries
provide any benefits that become payable solely as a result of the
consummation of this transaction.
(i) None of the persons performing services for the Corporation or any
of the Subsidiaries have been improperly classified as independent
contractors, leased employees, or as being exempt from the payment of wages
for overtime in a manner which has created or could create a material
liability.
SECTION 4.12 Employment Matters. Except as disclosed on Schedule 4.12,
------------------ -------------
for the five years preceding the date of this Agreement, neither of the
Corporation nor any of the Subsidiaries or Selling Shareholders are or have been
a party to any contracts, collective bargaining agreements, settlement
agreements, or arrangements granting benefits or rights to employees or
consultants, or
14
any settlement conciliation agreement or back pay order with the Department of
Labor, the Equal Employment Opportunity Commission or any Governmental Authority
which requires equal employment opportunities or affirmative action in
employment. There are no civil rights charges of any kind or charges of unfair
labor practice complaints pending against the Corporation or any of the
Subsidiaries or Selling Shareholders before the National Labor Relations Board,
the Equal Employment Opportunity Commission or any comparable Governmental
Authority. There are no union election petition, strikes, slowdowns, work
stoppages, lockouts, or to the knowledge of the Corporation, threats thereof, by
or with respect to any employees of the Corporation or any of the Subsidiaries.
The Corporation and each of the Subsidiaries are in compliance in all material
respects with all applicable laws respecting employment practices, employee
health, safety or welfare, employee documentation, terms and conditions of
employment and wages and hours and is not and has not engaged in any unfair
labor practice which could have a Material Adverse Effect.
SECTION 4.13 Patents, Trademarks and Copyrights.
----------------------------------
(a) Schedule 4.13 hereto sets forth a complete list of all registered
-------------
(and material unregistered) trademarks, trade names, product identifiers
and/or trade dresses of any type whatsoever which is, has been or is
presently planned to be used in the business (the "TRANSFERRED
TRADEMARKS"). Except as set out on Schedule 4.13, (a) each of the
-------------
Transferred Trademarks is valid and the subject of an application for
registration on the Principal Register of the United States Patent and
Trademark Office in the name of the person or entity identified, (b) as of
the date of this Agreement, Corporation has no knowledge of any
infringement of the Transferred Trademarks by others, (c) the continued use
of the Transferred Trademarks in the business (as the business has
heretofore been conducted and as currently planned) will not result in any
infringement of the rights of others in the United States, (d) the person
or entity identified on Schedule 4.13 is the sole and legal owner of the
-------------
Transferred Trademarks in the United States and, as of the date of this
Agreement, such owner has no knowledge of any claim by any other person
that such other person is the legal owner of such Trademarks, (e) no
license or right to use any Transferred Trademark has been granted to any
other person, and (f) each of Transferred Trademarks registered in the
United States is and has been in use in interstate commerce since the date
of first use in the application or any non-use of such trade ▇▇▇▇ is
excused under the law.
(b) Neither the Corporation nor any of its Subsidiaries has any
copyright registrations or patents which are, individually or collectively,
material to the conduct of the business.
(c) The Corporation has valid and enforceable contracts with each and
every employee, consultant and/or contractor of the Corporation and its
Subsidiaries which vests with the Corporation all rights in any invention,
copyright and/or trade secret which relates to the business of the
Corporation to the fullest extent permitted by law and also protects the
trade secrets and/or proprietary information of the Corporation and its
Subsidiaries to the fullest extent permitted by law.
SECTION 4.14 Environmental Matters. Except as set out on Schedule 4.14,
--------------------- -------------
with respect to any real property currently or previously owned, operated or
leased by the Corporation and the Subsidiaries (the "PROPERTIES"):
15
(a) There are no environmental conditions or circumstances, such as
the discharge, transportation, disposal, presence treatment, release or
threatened release of any hazardous substance, on from, at, under or about
any Properties which could, individually or in the aggregate, have a
Material Adverse Effect or materially and adversely affect the value of, or
operations conducted at any such Property;
(b) The Corporation and the Subsidiaries have in full force and effect
all material environmental permits, licenses, approvals and other
authorizations required to conduct their operations and are operating in
material compliance thereunder;
(c) The operations and use of the assets of each of the Corporation
and the Subsidiaries including, without limitation, the Properties, do not
violate, and neither the Corporation nor the Subsidiaries has any liability
under any applicable federal, state or local law, statute, ordinance, rule,
regulation, consent decree, judgment order or notice requirement pertaining
to (a) the environment, and/or health and safety including natural
resources or any activity which affects the environment, or (b) the
regulation of any pollutants, contaminants, waste, substances (whether or
not hazardous or toxic), petroleum, petroleum-based products, asbestos,
PCB, and any and all other substances or wastes regulated under any laws,
statute, ordinance or regulation; including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act (42
U.S.C. (S) 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S) 1801 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. (S) 1609 et seq.) the Clean Water Act (33 U.S.C. 1251 et seq.), the
Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control
Act (17 U.S.C. (S) 2601 et seq.), the Safe Drinking Water Act (42 U.S.C.
(S) 201 and (S) 300f et seq.), the Rivers and Harbors Act (33 U.S.C. (S)
401 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.) and
analogous, foreign, state and local provisions, as any of the foregoing may
have been amended or supplemented from time to time (collectively the
"APPLICABLE ENVIRONMENTAL LAWS") except for such violations which would not
result in a Material Adverse Effect;
(d) None of the operations, assets or Properties of the Corporation
and the Subsidiaries have ever been conducted or used in such a manner as
to constitute a violation of any of the Applicable Environmental Laws which
would result in a Material Adverse Effect;
(e) No notice has been served on the Corporation and the Subsidiaries
from any entity, Governmental Authority or individual regarding any
existing, pending or threatened investigation or inquiry related to alleged
violations under any Applicable Environmental Laws nor are there any
consent decrees, other decrees, consent orders, administrative orders or
other administrative or judicial requirements outstanding under any
Applicable Environmental Law naming the Corporation and the Subsidiaries as
a person that may have liability regarding any of the Properties; and
(f) There are no underground storage tanks located on the Properties
and there are no claims against the Corporation and the Subsidiaries
associated with any underground storage tanks previously located on the
Properties existing, or to the knowledge of Corporation, threatened which
claims could result in a Material Adverse Effect.
16
(g) Investor has been provided with an opportunity to review true,
correct and complete copies of all significant correspondence, notices,
contingency plans, consent decrees, audits, assessments, studies, judgments
and pleadings relating to any environmental condition or circumstance
affecting the Corporation, the Subsidiaries or any Property.
SECTION 4.15 Title to Properties; Encumbrances. Schedule 4.15 contains a
--------------------------------- -------------
list of all real property which is owned, leased or operated by the Corporation
and the Subsidiaries (collectively, the "REAL PROPERTIES"). Except for goods
and other property sold, used or otherwise disposed of in the ordinary course of
business for fair value, each of the Corporation and the Subsidiaries has good
and indefeasible title to all of its properties, interests in properties, and
assets (whether real, personal or mixed, tangible and intangible), reflected in
Schedule 4.15 and the Financial Statements. None of such property is subject to
-------------
any Encumbrance except (i) as described in Schedule 4.15 and the Financial
-------------
Statements; (ii) for liens for Taxes, assessments or governmental charges or
levies which are not delinquent; and (iii) for Encumbrances which do not
materially impair the operations of the Corporation or materially detract from
the value or use of the property subject thereto. Investor has been provided
with true, correct and complete copies of all leases affecting the Real
Properties, all of such leases are in full force and effect and constitute the
binding obligation of the Corporation or the Subsidiaries, as the case may be,
and no default has occurred under any such leases.
SECTION 4.16 Sufficiency of Assets. The buildings, plants, structures,
---------------------
equipment, real properties, personal properties, and vehicles of the Corporation
and the Subsidiaries constitute all of the assets of the Corporation and the
Subsidiaries, and are sufficient for the continued conduct of the Corporation's
and the Subsidiaries' business after the Closing in substantially the same
manner as conducted prior to the date of this Agreement. Except as set out on
Schedule 4.16, the software and hardware used in the management information
-------------
systems of the Corporation and its Subsidiaries (including its recently
installed system) will not fail to operate in any material respect on or after
January 1, 2000 due to software or hardware coded to read "00" in a date as the
year 1900.
SECTION 4.17 Permits and Licenses. Except as set out in Schedule 4.17,
-------------------- -------------
each of the Corporation and the Subsidiaries has all permits, licenses,
certificates and authorities from Governmental Authorities required to conduct
its business as now being conducted (collectively, the "LICENSES"), and the
consummation of the transactions contemplated by this Agreement will not
constitute a violation of any such License which would result in a Material
Adverse Effect. Such Licenses are in full force and effect unimpaired by any
act or omission of the Corporation or any Subsidiaries, or their employees or
agents, have not been suspended or revoked, and each of the Corporation and the
Subsidiaries has complied with, and will continue to comply with, their terms
until Closing, except for any failure to comply which would not result in a
Material Adverse Effect, and neither the Corporation, nor any of the
Subsidiaries or Selling Shareholders, has been notified by a Governmental
Authority that such authority intends to cancel, terminate or modify any of such
Licenses.
SECTION 4.18 Agreements, Contracts and Commitments. Except as described
-------------------------------------
in Schedule 4.18, the Corporation and the Subsidiaries are not a party to or
-------------
bound by (i) any written or oral contract, agreement or commitment which
involves or may involve aggregate future payments (whether in payment of a debt,
as a result of a guarantee or indemnification, for goods or services or
otherwise) by or to the Corporation or any Subsidiary of $50,000 or more and
which is not, by its terms, terminable by the Corporation and the Subsidiaries
without penalty or payment on
17
30 days notice or less, (ii) each contract, agreement or commitment, whether or
not fully performed, pursuant to which the Corporation or any Subsidiary has
acquired or disposed of a material portion of its business or assets at any time
since December 31, 1995, or (iii) any non-competition or secrecy agreement, any
loan or credit agreement, security agreement, indenture, mortgage, pledge,
conditional sale or title retention agreement, lease, purchase agreement or
other instrument evidencing indebtedness (other than equipment purchases or
lease agreements entered into in the ordinary course of business), or any sales
representative, partnership, joint venture, joint operating or similar
agreement, or any other executory contract or agreement which is material to the
Corporation and the Subsidiaries, considered as a whole. Each of the contracts
and agreements which are required to be identified on Schedule 4.18 pursuant to
-------------
(i), (ii) and (iii) above are hereinafter referred to as the "MATERIAL
CONTRACTS." Each of the Material Contracts is a valid, binding and enforceable
agreement of the Corporation or the Subsidiary, as the case may be, and, to the
knowledge of the Corporation, the other parties thereto. The Corporation and the
Subsidiaries have not breached any material provision of, and are not in default
in any material respect under the terms of, any of the Material Contracts, and
to the knowledge of the Corporation, no event has occurred which, after notice
or lapse of time or both, would constitute such a material default under the
terms of any Material Contract. To the knowledge of the Corporation, there does
not exist any event that, with the giving of notice or the lapse of time or
both, would constitute a material breach of or a material default under any such
Material Contract by any third party to such contracts, and neither the
Corporation nor any of the Subsidiaries has received or been given notice of any
such breach, default or event.
SECTION 4.19 Compliance with Law. The Corporation and the Subsidiaries
-------------------
are, and at all times since January 1, 1993, have been, in compliance in all
respects with any Law applicable to them or to the conduct and operation of
their business or the ownership or use of any of their assets, except to the
extent which such non-compliance would not result in any Material Adverse
Effect.
SECTION 4.20 Insurance. Schedule 4.20 sets forth a true and complete list
--------- -------------
of all policies of insurance to which the Corporation and or the Subsidiaries
are a party or under which the Corporation and the Subsidiaries are currently
covered. Copies of all such policies have been made available to Investor for
its inspection. The Corporation and the Subsidiaries have in effect insurance
coverage with responsible insurance carriers which in respect of the amounts,
types and risks insured, is customary in the type of business in which they are
engaged, are in full force and effect through the Closing and, except as
otherwise set out on Schedule 4.20, such policies, or other policies covering
-------------
the same risks, have been in full force and effect, without gaps, continuously
for the past five years. Neither the Corporation nor any Subsidiary is in
default under any of such policies or binders and, to the knowledge of the
Corporation, none has failed to give any notice or to present any claim under
such policy or binder in a due and timely fashion.
SECTION 4.21 Disclosure. No representation or warranty regarding
----------
Corporation or the Subsidiaries made in Article IV of this Agreement and no
statement in the Schedules omits to state a material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
SECTION 4.22 Brokers Commission or Finder's Fee. Neither the Corporation
----------------------------------
nor any of the Subsidiaries or Selling Shareholders has retained any broker or
finder (other than ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇) or agreed to become obligated to pay
any fee or commission to any broker or finder
18
(other than fees and commissions payable to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney pursuant to
that certain agreement (the "SALOMON ENGAGEMENT LETTER") dated as of August 25,
1997, between the Corporation and ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇) for or on account of the
transactions contemplated by this Agreement. The payment of the fees and
commissions payable to ▇▇▇▇▇▇▇ ▇▇▇▇▇ Barney will be paid by the Surviving
Corporation pursuant to the terms of Section 11.1 of this Agreement.
------------
SECTION 4.23 Transactions with Affiliates. Except as set out on Schedule
---------------------------- --------
4.23, no officer, director, employee or shareholder of the Corporation or any
----
Subsidiary nor any member of any such person's immediate family or any entity in
which any of the foregoing has an interest (collectively, a "RELATED PARTY") is
presently, or within the last year has been, a party to any transaction or
arrangement with the Corporation or any Subsidiary, including, without
limitation, any contract, lease or other agreement (a) providing for the
furnishing of services or assets by, (b) providing for the rental of real
property from, or (c) otherwise requiring payments to (other than for (i)
dividends or distributions to any shareholder in his or her capacity as such or
(ii) compensation to any officer, director or employee in his or her capacity as
such) such Related Party. Each such transaction shown on Schedule 4.23 is on
-------------
terms no less favorable to the Corporation or such Subsidiary than could be
obtained from an unaffiliated third party, except as set out on Schedule 4.23.
-------------
As of the date of this Agreement, all liabilities owed by Century Air
Conditioning, Inc. ("CAC") to the Corporation, other than liabilities incurred
in the ordinary course of business, the approximate amount of which is set out
on Schedule 4.23, have been paid in full.
-------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor makes the representations and warranties set out in this Article V
---------
to Selling Shareholders.
SECTION 5.1 Organization and Authority. Investor is a Delaware
--------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Investor has all requisite corporate power and
authority to carry on its business as it is now being conducted, to own, lease
and operate its properties and assets, and to perform all of its obligations
under the agreements and instruments to which it is a party or by which it is
bound. Investor is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
the properties and assets owned, leased or operated by it or the nature of the
business conducted by it make such qualification necessary, except where the
failure to be so qualified would not have a Material Adverse Effect.
SECTION 5.2 Authority Relative to the Agreement. Investor has full
-----------------------------------
corporate power and authority to execute, deliver and perform this Agreement and
the other documents contemplated herein, and no further corporate proceedings on
the part of Investor is necessary to consummate the transactions contemplated
hereby, which have been duly and validly authorized and approved by the board of
directors and shareholders of Investor. This Agreement has been duly and
validly executed and delivered by Investor, and this Agreement constitutes the
legal, valid and binding obligation of Investor enforceable against Investor in
accordance with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and general equitable principles.
19
SECTION 5.3 No Violation. Neither the execution, delivery nor
------------
performance of this Agreement or the other documents contemplated herein, nor
the consummation of all of the transactions contemplated hereby and thereby
will, as of the date of this Agreement, (a) violate any law, order, writ,
judgment, injunction, award, decree, rule, statute, ordinance or regulation
applicable to Investor which would result in a Material Adverse Effect, (b) be
in conflict with, result in a breach or termination of any provision of, cause
the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, require the consent under, or result in the creation of any
security interest, lien, charge or other encumbrance upon any property or assets
of Investor pursuant to, any terms, conditions or provisions of any note,
license, instrument, indenture, mortgage, deed of trust, contract, lease or
other agreement or understanding or any other restriction of any kind or
character, to which Investor is a party or by which any of its assets or
properties are subject or bound, and which in each case would result in a
Material Adverse Effect, or (c) conflict with or result in any breach of any
provision of the charter documents or bylaws of the Investor.
SECTION 5.4 Consents and Approvals. Except for termination of the
----------------------
waiting period under the HSR Act, no prior consent, approval or authorization
of, or declaration, filing or registration with any person, domestic or foreign,
or any Governmental Authority, is required of or by Investor in connection with
the execution, delivery and performance by Investor of this Agreement and their
consummation of the transactions contemplated hereby.
SECTION 5.5 Financing. Investor has available the funds necessary to
---------
pay the Cash Merger Consideration, the Preferred Stock Merger Consideration, the
Cash Option Consideration and the payment of expenses by the Surviving
Corporation as set out in Section 11.1 of this Agreement or has funding
------------
commitments for financing therefor on terms and conditions which are fully
disclosed on Schedule 5.5 of this Agreement.
------------
SECTION 5.6 Brokers Commission or Finder's Fee. Investor has not
----------------------------------
retained any broker or finder or agreed to become obligated to pay any fee or
commission to any broker or finder for or on account of the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS OF CORPORATION
SECTION 6.1 Affirmative Covenants of Corporation. For so long as this
------------------------------------
Agreement is in effect, except as specifically contemplated by this Agreement,
the Corporation shall, from the date of this Agreement to the Closing, and shall
cause the Subsidiaries to:
(a) operate and conduct their business in the ordinary course of
business consistent with past practice;
(b) use good faith and reasonable efforts to preserve intact their
corporate existence, goodwill, business reputation, business organization,
assets, licenses, permits and authorizations;
(c) comply with all material contractual obligations applicable to
their operations;
20
(d) use good faith and reasonable efforts to maintain all their
properties in good repair, order and condition, reasonable wear and tear
excepted;
(e) in good faith and in a timely manner (i) cooperate with Investor
in satisfying the conditions in this Agreement, (ii) assist Investor as
promptly as practicable in obtaining all consents, approvals,
authorizations and rulings whether regulatory, corporate or otherwise, as
are necessary for Investor and the Corporation to carry out and consummate
the transactions contemplated by this Agreement, and (iii) furnish
information concerning it not previously provided to Investor required for
inclusion in any filings or application that may be necessary in that
regard;
(f) use good faith and reasonable efforts to keep available the
services of its officers and employees and to preserve the relationships
that it currently maintains with its customers, suppliers, distributors and
other persons having business dealings with the Corporation and the
Subsidiaries;
(g) maintain its books, accounts and records consistent with past
practices and policies and in accordance with GAAP;
(h) maintain its existing insurance policies covering it, unless
comparable insurance is substituted theretofore, and not take any action to
terminate or modify those insurance policies;
(i) cooperate with Investor and use commercially reasonable efforts to
take, or cause to be taken, all action reasonably requested by Investor in
connection with the financing of the transactions contemplated by this
Agreement, and to treat the transactions contemplated by this Agreement as
a recapitalization for financial reporting purposes, including, without
limitation, assisting Investor with any presentation to Investor's and its
accountants and financing sources as well as any regulatory authority;
(j) give prompt written notice to Investor of the commencement of any
action, suit, proceeding or investigation or the assertion of any claim or
threat to commence any action, suit, proceeding or investigation that
challenges the Merger or the transactions contemplated by this Agreement or
would result in a Material Adverse Effect, if adversely decided, and keep
Investor promptly informed as to any developments in any pending action,
suit, proceeding or investigation.
In connection with its obligations under subparagraph (e) of this Section
-------
6.1, and in connection with its negotiations for consents, the Corporation may
---
not offer or consent to any modification or amendment of any lease, or other
contract without Investor's prior written consent. The Corporation shall keep
Investor apprised of its progress in obtaining such consents.
SECTION 6.2 Negative Covenants of Corporation. Except with the prior
---------------------------------
written consent of Investor or as otherwise specifically permitted by this
Agreement, the Corporation will not, from the date of this Agreement to the
Closing, and will cause the Subsidiaries not to, directly or indirectly:
(a) make any amendment to their charter documents or bylaws;
21
(b) make (i) any change in their accounting practices or policies,
except as may be required by applicable law or regulation, or make any
material revaluation of any of their respective assets, including without
limitation, any material writeoff, increases in any reserves (including any
reserve for taxes payable), or any writeoff of the value of inventory,
property, plant, equipment or any other asset or material increase or
change any assumptions underlying, or methods of calculating, any bad debt,
contingency or other reserves except in the ordinary course of business
consistent with past practice, (ii) any material change to its rebate or
discount programs, (iii) any material change to its promotion and/or
advertising programs, or (iv) any material change to its inventory policies
or practices.
(c) make any change in the number of shares of the capital stock
issued and outstanding, or issue, redeem or purchase, or reserve for
issuance, grant, sell or authorize the issuance of any shares of their
capital stock or subscriptions, options, warrants, calls, rights or
commitments of any kind relating to the issuance or sale of or conversion
into shares of their capital stock;
(d) contract to create any obligation or liability, except in the
ordinary course of business;
(e) contract to create or permit to exist any mortgage, pledge, lien,
security interest or encumbrances, restrictions, or charge of any kind
(other than capital leases and statutory liens for which the obligations
secured thereby shall not become delinquent), except to the extent that
such mortgage, pledge, lien, security interest or encumbrance, restriction
or charge of any kind is incurred pursuant to the Corporation's credit
facilities in effect on the date of this Agreement or pursuant to the
Corporation's purchase of equipment in accordance with the capital budget
set out on Schedule 4.7(n) hereto;
---------------
(f) waive any material right under or cancel any material contract,
lease, commitment, option or agreement, or (without payment in full) any
material note, loan or other obligation owing to the Corporation,;
(g) except for sales of inventory and obsolete equipment in the
ordinary course of business consistent with past practice, sell, lease,
transfer, distribute, or otherwise dispose of any of its properties or
enter into any agreement to do any of the foregoing;
(h) grant any increase in compensation or pay or agree to pay or
accrue any bonus or like benefit to or for the credit of any director or
officer; except in the ordinary course of business consistent with past
practices, grant any increase in compensation or pay or agree to pay or
accrue any bonus or like benefit to or for the credit of any employee;
enter into any employment, consulting or severance agreement or other
agreement with any current or prospective director, officer or employee
which does not permit termination "at will" by the Corporation; or adopt,
amend or terminate any Benefit Plan or change or modify the period of
vesting or retirement age for any participant of such a plan;
(i) except as otherwise provided herein declare, pay or set aside for
payment any dividend or other distribution or payment in respect of shares
of their capital stock;
22
(j) dissolve, liquidate, reorganize, recapitalize, merge, consolidate
or otherwise make any change in their capital stock, capital structure,
corporate structure or existence;
(k) make any investment in any person or entity, whether by loan or
advance, purchase of stock or other securities or contributions to capital;
(l) enter into or commit to enter into transaction between the
Corporation or a Subsidiary, on the one hand, and any Related Party, on the
other hand;
(m) guaranty the obligations of any third party (other than a
Subsidiary);
(n) incur any indebtedness other than pursuant to its presently
existing credit facility and the lease facilities set out in Schedule 4.18E
--------------
hereto, in each case in the ordinary course of business consistent with
past practice;
(o) settle any material litigation or similar proceeding involving the
Corporation, any Subsidiary or any Selling Shareholder;
(p) take any action which would result in a breach of the
representations and warranties contained in Article IV of this Agreement,
----------
such that the same will not be true and correct on the Closing Date; or
(q) enter into any agreement, plan or commitment to do any of the
foregoing.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Continuing Employees and Employee Benefit Plans.
-----------------------------------------------
(a) The Corporation and the Investor agree that the Corporation will
continue after the Effective Time to employ each employee employed by the
Corporation and the Subsidiaries in connection with the conduct of the
business of the Corporation and the Subsidiaries on the Closing Date (the
"CONTINUING EMPLOYEES") on substantially the same terms and conditions as
those enjoyed by such Continuing Employees immediately prior to the Closing
Date; provided, however, this paragraph shall not effect any employment-at-
will status of any such Continuing Employee or confer on any employee the
right to remain in the Corporation's employ for any specified period after
the Closing Date.
(b) Effective as soon as administratively practicable after the
Closing Date, the participation of the Corporation and the Subsidiaries in
the Century Air Supply, Inc. 401(k) Plan (the "CENTURY 401(k) PLAN") shall
be restated by Corporation as a new plan (the "CORPORATION 401(k) PLAN")
that is substantially similar to the Century 401(k) Plan for the benefit of
the Continuing Employees and their beneficiaries. The Continuing Employees
shall become participants in the Corporation's 401(k) Plan as of its
effective date without a gap or lapse (from the Century 401(k) Plan) in
coverage, time or effect of an employee plan and trust which are qualified
and exempt under applicable provisions of the Code. The Continuing
Employees shall have all the rights and obligations under the Corporation
401(k) Plan that are substantially similar to their rights and obligations
under the Century 401(k)
23
Plan. All account balances transferred from the trust maintained in
connection with the Century 401(k) Plan to the trust maintained in
connection with the Corporation 401(k) Plan which are 100% vested and
nonforfeitable under the Century 401(k) Plan shall be 100% vested and
nonforfeitable as of the Closing Date. The Corporation 401(k) Plan shall be
intended to meet the requirements for qualification under Sections 401(a)
and 401(k) of the Code and the trust maintained in connection with the
Corporation 401(k) Plan shall be intended as tax exempt under Section
501(a) of the Code. The Corporation agrees to file for a determination
letter from the Internal Revenue Service, to the effect that the
Corporation 401(k) Plan is qualified under Section 401(a) of the Code and
its trust is tax exempt under Section 501(a) of the Code, within 60 days
from the effective date of the Corporation 401(k) Plan. The Corporation
401(k) Plan shall provide that all service credited to the Continuing
Employees under the Century 401(k) Plan shall be credited for all purposes,
including eligibility and vesting, under the Corporation 401(k) Plan. The
Corporation agrees to establish under Corporation 401(k) Plan such
arrangements as are necessary to permit any Continuing Employee to provide
for payroll withholding for purposes of repaying any loan under the Century
401(k) Plan that is transferred to the Corporation 401(k) Plan trust.
Coincident with establishment of Corporation 401(k) Plan, Corporation
agrees to enter into a "spin-off agreement", that is reasonably
satisfactory to Corporation, with the plan sponsor and the trustee of the
Century 401(k) Plan and the trustee of the Corporation 401(k) Plan, to
record and effectuate the transfer of plan assets from the Century 401(k)
Plan trust to the Corporation 401(k) Plan trust for the benefit of the
Continuing Employees and their beneficiaries. As soon as administratively
possible following the receipt of a determination letter from the Internal
Revenue Service (to the effect that the Century 401(k) Plan is qualified
under Section 401(a) of the Code and its trust is tax exempt under Section
501(a) of the Code), a copy of that determination letter shall be furnished
to Investor and FSEP IV. In no event will the Corporation 401(k) Plan be
required to accept any assets from the Century 401(k) Plan prior to the
Corporation's receipt of the determination letter.
(c) The Corporation agrees to provide or continue coverage on and
after the Closing Date to Continuing Employees and their dependents who
participate in, or are eligible to participate in, any medical, dental,
vision, short- and long-term disability, life insurance, business, travel,
accident and other employee benefit plans and programs (collectively,
"CORPORATION WELFARE PLANS") on substantially the same terms and conditions
as provided to the Continuing Employees and their dependents immediately
prior to the Closing for a period of one (1) year following the Closing
Date. All waiting periods and pre-existing condition clauses shall be
waived or limited under the Corporation Welfare Plan with respect to such
Continuing Employees and their dependents to the extent they had been
waived or limited under the similar plans of the Corporation immediately
prior to the Closing Date. In addition, the Corporation shall cause the
Corporation Welfare Plans to recognize and credit any out-of-pocket
expenses incurred by such Continuing Employees and their dependents during
the portion of the respective plan year through the Closing Date for
purposes of determining their deductibles, out-of-pocket maximums and other
limits as benefits under the Corporation Welfare Plans; it being the
purpose of this paragraph to provide the Continuing Employees and their
dependents under the Corporation Welfare Plans with substantially the same
rights and benefits that they had under similar plans of the Corporation
immediately prior to the Closing Date. The Corporation will permit
Continuing Employees to schedule and take accrued and earned but unused
vacation days with pay as
24
of the Closing Date, in accordance with the applicable vacation policies as
in effect on the Closing Date, and the Corporation shall assume that
liability therefor.
(d) The Corporation, the Subsidiaries, the Investor and the Selling
Shareholders shall cooperate with each other in all respects relating
to any actions to be taken pursuant to this Article VII.
SECTION 7.2 Access To, and Information Concerning, Properties and
-----------------------------------------------------
Records.
-------
(a) During the pendency of the transactions contemplated hereby, the
Corporation shall, to the extent permitted by law, give Investor, its legal
counsel, accountants and other representatives access, upon reasonable
request and at reasonable times, throughout the period prior to the
Closing, to all of such Corporation's and the Subsidiaries' properties,
books, contracts and records, permit Investor and such representatives to
make such inspections as they may reasonably require and furnish to
Investor and such representatives during such period all such information
concerning the Corporation and the Subsidiaries and their affairs as they
may reasonably request. The Corporation shall use commercially reasonable
efforts to obtain Ernst & Young's consent to permit Investor to review
Ernst & Young's work papers relating to the financial statements referenced
in Section 4.6.
-----------
(b) Notwithstanding any other provisions of this Agreement, neither
Investor nor any of its respective agents or representatives shall perform
any investigation or study of the real property of the Corporation and the
Subsidiaries which may involve the intrusive or destructive sampling or
analysis or chemical testing of any portion of such property or its
improvements, including without limitation, of any soil, water or
groundwater on, under or about such real property ("PHASE II
INVESTIGATION"), without first (a) submitting to Corporation a detailed
description of (i) the work to be performed as part of the Phase II
Investigation, (ii) the persons to undertake such Phase II Investigation,
and (iii) the types and amount of insurance coverage maintained by such
persons, and (b) obtaining the prior written consent of the Corporation as
to such matters, which shall not be unreasonably withheld. The Corporation
may grant such consent subject to such terms, conditions or restrictions as
the Corporation may reasonably require.
(c) All information disclosed by Corporation to Investor shall be held
strictly confidential by Investor and its representatives and used solely
for purposes of evaluating the transactions contemplated hereby. In the
event this Agreement is terminated pursuant to the provisions of Article IX
of this Agreement, upon the written request of Corporation, Investor agrees
to return to Corporation all copies of such confidential information,
together with all extracts or other reproductions thereof in the possession
of Investor or its representatives. It is understood that confidential
information shall not include the following:
(i) Information that becomes generally available to the public
other than as a result of a disclosure by Investor, its
representatives or its agents;
(ii) Information that was in the possession of Investor or its
representatives prior to disclosure by the Corporation and the
Subsidiaries, or their representatives or agents;
25
(iii) Information Investor is required to disclose pursuant to
law or order of any court of competent jurisdiction, provided in the
event of any such proposed disclosure, Investor shall give Corporation
prior written notice and opportunity to object to any such disclosure
to the extent permitted by law;
(iv) Information relevant to any legal proceeding between
Investor and the Corporation or Selling Shareholders; or
(v) Information that becomes available to Investor or its
representatives on a non-confidential basis from a source other than
the Corporation and the Subsidiaries, or their representatives or
agents.
(d) In the event this Agreement is terminated pursuant to the
provisions of Article IX of this Agreement, Investor agrees that it will
not hire any officers, directors, branch managers or salespersons of
Corporation and the Subsidiaries for a period of two years after the date
of this Agreement.
SECTION 7.3 Good Faith Efforts. All parties hereto agree that the
------------------
parties will use their reasonable good faith efforts to secure all third-party
or regulatory approvals necessary to consummate the transactions contemplated
hereby and other transactions provided herein and to satisfy the other
conditions to Closing contained herein as soon as reasonably practicable. Each
party agrees to make copies of its respective regulatory filings and related
correspondence to regulatory agencies available to the other parties.
SECTION 7.4 HSR Filing. Within seven days after the execution of this
----------
Agreement, each of Investor and Corporation shall file, or cause to be filed,
the Notification and Report Form pursuant to the applicable provisions of the
HSR Act.
SECTION 7.5 Exclusive Nature of Agreement. Prior to the Closing, or
-----------------------------
such earlier date on which this Agreement is terminated in accordance with its
terms, the Selling Shareholders, the Corporation and the Subsidiaries and their
respective officers, employees, agents, representatives and trustees will not,
directly or indirectly, solicit from any person, or otherwise encourage any
person to make, any inquiries or proposals, or furnish information, relating to
the acquisition, in whole or in part, of the assets or securities of the
Corporation and its Subsidiaries (an "ACQUISITION PROPOSAL") or engage in any
negotiations or enter into any agreement or understanding with any person (other
than Investor) regarding an Acquisition Proposal. The Selling Shareholders will
not furnish any information concerning the Corporation and its Subsidiaries to
any person other than Investor and FSEP IV for the purpose of, or with the
intent of, permitting such person or entity to evaluate a possible Acquisition
Proposal. The Selling Shareholders and/or the Corporation and its Subsidiaries
will notify Investor immediately of any Acquisition Proposal and will disclose
the terms of the Acquisition Proposal and identity of the party making the
Acquisition Proposal.
SECTION 7.6 Accounting Treatment. The Corporation shall use
--------------------
commercially reasonable efforts, and take all reasonably necessary steps
requested by Investor (and at Investor's expense), in order to obtain the
recording of the Merger as a recapitalization for financial reporting purposes,
including, without limitation, to assist Investor and its affiliates with any
presentation to Investor's and the Corporation's accountant or any applicable
regulatory authority with regard to such recording.
26
SECTION 7.7 Payment Approvals. The Major Shareholder shall cause the
-----------------
shareholders of the Corporation to approve, in accordance with the requirements
of Section 280G(b)(5)(B) of the Code, any payments which are contingent upon, or
related to, the transactions contemplated hereunder and which could be "excess
parachute payments" for Federal income tax purposes under Section 280G of the
Code.
SECTION 7.8 Additional Financial Statements. The Corporation shall
-------------------------------
deliver to Investor (a) the Audited 1997 Financial Statement on or before May 7,
1998, (b) the Final 1997 Pro Formas and the 1996 and 1995 Restated Financial
Statements on or before May 8, 1998, and (c) the March 31, 1998 Financial
Statements on or before May 15, 1998. Prior to the Effective Time, the
Corporation will provide to Investor, as soon as practicable but in any event no
later than 30 calendar days after the end of each month, unaudited financial
statements, which include a consolidated balance sheet of Corporation and the
Subsidiaries as of the end of such month and the related consolidated statements
of income for the month then ended.
SECTION 7.9 Tax Matters.
-----------
(a) Tax Indemnity. Notwithstanding any other provisions of this
Agreement, from and after the Closing, the Major Shareholder, subject to
Section 10.2(a)(i) of this Agreement, but not subject to the limitation in
------------------
Section 10.2(a)(ii), shall indemnify and hold harmless the Corporation and
-------------------
the Subsidiaries (the "IDENTIFIED PARTIES") against the following Taxes,
but only for Taxes in excess of the sum of Taxes paid by the Corporation
and the Subsidiaries prior to December 31, 1997, Taxes accrued as current
Taxes payable on the December 31, 1997 financial balance sheet, and Taxes
accrued or paid after December 31, 1997 in the ordinary course of business,
in accordance with past practice, with respect to business operations for
the period of January 1, 1997 through the Closing Date, and, against any
loss, damage, liability or expense, including, but not limited to,
reasonable fees for attorneys and other outside consultants, incurred in
contesting or otherwise in connection with any such Taxes: (i) Taxes
imposed on the Corporation and the Subsidiaries with respect to taxable
years or periods ending on or before the Closing Date; (ii) with respect to
taxable years or periods beginning before the Closing Date and ending after
the Closing Date, Taxes imposed on the Corporation and the Subsidiaries
which are allocable, pursuant to Section 7.9(d) below, to the portion of
--------------
such taxable year or period ending on the Closing Date an "INTERIM PERIOD")
(Interim Periods and any taxable years or periods that end on or prior to
the Closing Date being referred to collectively hereinafter as "PRE-CLOSING
PERIODS"); (iii) Taxes imposed on any member of any affiliated group with
which the Corporation and the Subsidiaries or any Subsidiary files or has
filed a Tax Return on a consolidated, combined or unitary basis for a
taxable year or period ending on or before the Closing Date; or (iv) Taxes
required to be paid or reimbursed by the Major Shareholder under Section
-------
7.9(d) of this Agreement (to the extent such Taxes have not been paid by
------
Major Shareholder).
(b) Apportionment of Taxes. In order to apportion appropriately any
Taxes relating to any taxable year or period that includes an Interim
Period, the parties hereto shall, to the extent permitted under applicable
law, elect with the relevant Tax authority to treat for all purposes, the
Closing Date as the last day of the taxable year or period of the
Corporation and the Subsidiaries, and such Interim Period shall be treated
as a short taxable year and a Pre-Closing Period for purposes of this
Section 7.9. In any case where applicable law does
-----------
27
not permit the Corporation and the Subsidiaries to treat the Closing Date
as the last day of the taxable year or period of the Corporation and the
Subsidiaries with respect to Taxes that are payable with respect to an
Interim Period, the portion of any such Tax that is allocable to the
portion of the Interim Period ending on the Closing Date shall be:
(x) in the case of Taxes that are either (1) based upon or
related to income or receipts, or (2) imposed in connection with any
sale or other transfer or assignment of property (real or personal,
tangible or intangible), deemed equal to the amount which would be
payable if the taxable year or period ended on the Closing Date
(except that, solely for purposes of determining the marginal tax rate
applicable to income or receipts during such period in a jurisdiction
in which such tax rate depends upon the level of income or receipts,
annualized income or receipts may be taken into account, if
appropriate, for an equitable sharing of such Taxes); and
(y) in the case of Taxes not described in subparagraph (x) above
that are imposed on a periodic basis and measured by the level of any
item, deemed to be the amount of such Taxes for the entire period (or,
in the case of such Taxes determined on an arrears basis, the amount
of such Taxes for the immediately preceding period) multiplied by a
fraction the numerator of which is the number of calendar days in the
Interim Period ending on the Closing Date and the denominator of which
is the number of calendar days in the entire relevant period.
(c) Preparation of Tax Returns. The Major Shareholder shall cause to
be prepared and filed or otherwise furnish to the appropriate party (or
cause to be prepared and filed or so furnished) in a timely manner, any and
all Tax Returns for, including or required to be filed by the Corporation
and the Subsidiaries for any taxable year or period ending on or before the
Closing Date, or the due date of which (including extensions) is on or
prior to the Closing Date. All such Tax Returns shall be prepared in a
manner consistent with the prior Tax Returns of the Corporation and the
Subsidiaries, unless otherwise required under applicable law. Subject to
their right to indemnification under Section 7.9(a), the Corporation and
--------------
the Subsidiaries shall timely pay (or cause to be timely paid) all Taxes
shown as due and owing on all such Tax Returns. Investor, the Corporation
and the Subsidiaries and the Major Shareholder shall cause to be prepared
and filed, any and all other Tax Returns for, including or required to be
filed by the Corporation and the Subsidiaries for any taxable year or
period ending after the Closing Date or the due date of which (including
extensions) is after the Closing Date. Subject to its right to
indemnification under this Section 7.9, the Corporation and the
-----------
Subsidiaries shall pay (or cause to be paid) all Taxes shown as due and
owing on all such Tax Returns. Investor, the Corporation and the
Subsidiaries and the Major Shareholder shall reasonably cooperate, and
shall cause their respective affiliates, officers, employees, agents,
auditors and other representatives to reasonably cooperate, in preparing
and filing all Tax Returns, including maintaining and making available to
each other all records necessary in connection with Taxes and in resolving
all disputes and audits with respect to all taxable periods relating to
Taxes. Investor and the Major Shareholder recognize that the Major
Shareholder and the Major Shareholder's agents and other representatives
will need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Corporation and the
Subsidiaries to the extent such records and information pertain to events
occurring prior to the Closing Date, therefore, each of Investor and the
Corporation and the
28
Subsidiaries agrees (i) to use its best efforts to properly retain and
maintain such records until such time as the Major Shareholder agrees that
such retention and maintenance is no longer necessary (but in no event
longer than six years after the Closing Date) and (ii) to allow the Major
Shareholder and the Major Shareholder's agents and other representatives,
at times and dates mutually acceptable to the parties, to inspect, review
and make copies of such records as the Major Shareholder, its agents and
other representatives may deem necessary or appropriate from time to time,
such activities to be conducted during normal business hours and at the
Major Shareholder's expense.
(d) Transfer and Conveyance Taxes. The Selling Shareholders shall be
liable for and shall pay all applicable sales, transfer, recording, deed,
stamp and other similar taxes, including, without limitation, any real
property transfer or gains taxes (if any), resulting from the consummation
of the transactions contemplated by this Agreement.
(e) Contests. The Identified Parties shall promptly notify the Major
Shareholder in writing of any written notice of a proposed assessment or
claim in an audit or administrative or judicial proceeding involving the
Corporation and the Subsidiary which, if determined adversely to the
taxpayer, would be grounds for indemnification under this Section 7.9;
-----------
provided, however, that a failure to give such notice will not affect any
-------- -------
Indemnified Party's right to indemnification hereunder, except to the
extent, if any, that, but for such failure, the Major Shareholder could
have avoided the Tax liability in question. In the case of an audit or
administrative or judicial proceeding that relates to any Pre-Closing
Period, provided that within 30 days after the Major Shareholder receives
--------
the written notice from the Indemnified Parties required under this Section
-------
7.9(e) and prior to taking any action with respect to such audit or
------
administrative or judicial proceeding, the Major Shareholder acknowledges
in writing his liability under this Section 7.9 to hold the Indemnified
-----------
Parties harmless against the full amount of any adjustment which may be
made as a result of such audit or proceeding, the Major Shareholder shall
have the right at its own expense to control the conduct of such audit or
proceeding; provided, however, that the Major Shareholder shall not settle
-------- -------
or otherwise compromise any issue or matter without the Investor's prior
written consent if such issue or matter will have a material effect on the
Tax liability of the Indemnified Parties for a post-Closing taxable year or
period (or for an Interim Period). Investor also may participate in any
such audit or proceeding at its own expense and, if the Major Shareholder
does not assume the defense of any such audit or proceeding, Investor may,
without any effect to its or the right of indemnification by the
Indemnified Parties under this Section 7.9, defend the same in such manner
-----------
as it may deem appropriate, including, but not limited to, settling such
audit or proceeding.
(f) Time of Payment. Payment of any amounts due under this Section
-------
7.9 in respect of Taxes shall be made by the Major Shareholder at least
---
three Business Days before the due date of the applicable estimated final
Tax Return required to be filed by the Indemnified Parties on which is
required to be reported income for an Interim Period for which the Major
Shareholder is responsible under this Section 7.9 of this Agreement without
-----------
regard to whether the Tax Return shows overall net income or loss for such
period, or, with respect to indemnity payments due under this Section 7.9
-----------
of this Agreement, within three Business Days following a settlement or
compromise of an assessment of a Tax by a taxing authority or a
"DETERMINATION" as defined in Section 1313(a) of the Code. If liability
under this Section 7.9 is in respect of costs or expenses other than Taxes,
-----------
payment by the Major
29
Shareholder of any amounts due under this Section 7.9 shall be made within
-----------
five Business Days after the date that the Major Shareholder has been
notified by Investor that the Major Shareholder has a liability for a
determinable amount under this Section 7.9 and is provided with
-----------
calculations or other materials supporting such liability.
(g) Termination of Indemnity Obligations of the Major Shareholder for
Taxes. Notwithstanding any provision herein to the contrary, the
obligations of the Major Shareholder to indemnify and hold harmless the
Indemnified Parties pursuant to this Section 7.9 shall terminate at the
-----------
close of business on the day following the expiration of the applicable
statute of limitations with respect to the Tax liabilities in question
(giving effect to any waiver, mitigation or extension thereof).
(h) Tax Elections. From and after the date of this Agreement, the
Corporation, the Subsidiaries and the Major Shareholder shall not, without
the prior written consent of Investor (which may not unreasonably withhold
such consent), make or revoke, or cause or permit to be made or revoked,
any Tax election, or adopt or change any method of accounting, that would
adversely affect the Corporation and the Subsidiaries.
(i) Tax Sharing Agreements. As of the Closing Date, any and all Tax
sharing, indemnity or allocation agreements shall terminate as between the
Corporation and the Subsidiaries on the one hand, and the Major Shareholder
and/or any affiliate of the Major Shareholder, on the other hand, and,
after the date of this Agreement, no Taxes or other amounts shall be paid
or reimbursed by the Corporation and the Subsidiaries under any such
agreement, regardless of the taxable year or period for which such Taxes
are imposed, and the provisions of this Section 7.9 shall govern
-----------
thereafter.
SECTION 7.10 New Stock Option Plan. Promptly after the Effective Time,
---------------------
the Corporation will take all steps reasonably necessary to cause the
Corporation to adopt the 1998 Incentive Stock Plan, and to grant options
thereunder, substantially on the terms attached hereto as Exhibit D. This
---------
provision shall not confer a specific benefit on any employee other than the
Major Stockholder.
SECTION 7.11 Directors' and Officers' Indemnifications.
-----------------------------------------
(a) The indemnification provisions of the Certificate of Incorporation
of the Surviving Corporation as in effect at the Effective Time shall not
be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors or
officers of the Corporation with respect to acts or omissions occurring
prior to the Effective Time, unless such modification is required by law,
provided that such provision shall be amended prior to the Effective Time
to provide that no indemnification shall be made by the Surviving
Corporation with respect to any matter that constitutes a breach of a
representation or warranty or covenant or agreement under this Agreement.
(b) Subject to Section 7.11(a), after the Effective Time, the
---------------
Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former
director and officer of the Corporation or any of its subsidiaries (each,
together with such person's heirs, executors or administrators, an
30
"INDEMNIFIED PARTY" and collectively, the "INDEMNIFIED PARTIES") against
any costs or expenses (including attorneys fees), judgments, fines, losses,
claims, damages, liabilities and amounts paid in settlement in connection
with any actual or threatened claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of, relating to or in connection with any action or omission
occurring prior to the Effective Time (including, without limitation, acts
or omissions in connection with such persons serving as an officer,
director or other fiduciary in any entity if such service was at the
request or for the benefit of the Corporation) other than any liability
arising out of or pertaining to any breaches of representations and
warranties made to Investor and FSEP IV or covenants and agreements under
this Agreement. In the event of any such actual or threatened claim,
action, suit, proceeding or investigation (whether arising before or after
the Effective Time), (i) the Corporation shall pay the reasonable fees and
expenses of counsel selected by the indemnified Parties, which counsel
shall be reasonably satisfactory to the Surviving Corporation, promptly
after statements therefor are received and shall pay all other reasonable
expenses in advance of the final disposition of such action, and (ii) the
Surviving Corporation will cooperate and use all reasonable efforts to
assist in the vigorous defense of any such matter. The Surviving
Corporation shall not be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld) and,
provided that if the Surviving Corporation advances or pays any amount to
any person under this paragraph (b) and if it shall thereafter be finally
determined by a court of competent jurisdiction that such person was not
entitled to be indemnified hereunder for all or any portion of such amount,
such person shall repay such amount or such portion thereof, as the case
may be, to the Surviving Corporation. The indemnified Parties as a group
may not retain more than one law firm to represent them with respect to
each matter unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any
two or more Indemnified Parties.
(c) In the event the Surviving Corporation or its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfers all or substantially all of its properties and
assets to any person, then and in each such case, proper provisions shall
be made so that the successors and assigns of the Surviving Corporation
shall assume the obligations set out in this Section 7.11.
------------
(d) Surviving Corporation shall pay all reasonable expenses, including
reasonable attorneys' fees, that may be incurred by any indemnified Person
in enforcing the indemnity and other obligations provided in this Section
-------
7.11.
----
(e) The rights of each Indemnified Party hereunder shall be in
addition to any other rights such indemnified Party may have under the
charter or bylaws of the Corporation or the Surviving Corporation, under
the GCL or otherwise. The provisions of this Section 7.11 shall survive
------------
the consummation of the Merger and expressly are intended to benefit each
of the indemnified Parties.
31
SECTION 7.12 Option to Purchase. Effective as of the Effective Time,
------------------
CAC grants to FSEP IV the option (the "OPTION") to purchase 72,753 shares of
Corporation Common Stock (the "OPTION SHARES") for a purchase price per share
payable in cash equal to the Cash Merger Consideration, which number of Option
Shares and purchase price per share shall be proportionately adjusted to reflect
the Stock Split immediately after the Effective Time. The Option will be
exercisable by FSEP IV commencing on January 2, 1999 and shall expire and no
longer be in effect at 5:00 p.m., Houston time on March 2, 1999. FSEP IV will
give CAC notice of its exercise of the Option, and a closing of the purchase of
the Option Shares will occur within 5 business days after the date of such
notice. At the closing, FSEP IV will deliver the cash payment by wire transfer
to CAC for the Option Shares against delivery by CAC of certificates
representing the Option Shares, duly endorsed or accompanied by appropriate
stock powers, sufficient to convey title to the Option Shares to FSEP IV free
and clear of all Encumbrances. In addition, at the Closing, CAC will provide a
certificate, signed by its President, confirming that all of the representations
and warranties made by CAC in Article III of this Agreement are true and correct
as of the date of closing of the purchase of the Option Shares. If FSEP IV
exercises this Option, the Option Shares shall be entitled to share in any claim
for Specialty Losses or Indemnity Losses.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 8.1 Conditions to Each Party's Obligation. The respective
-------------------------------------
obligations of each party to effect the transactions contemplated hereby are
subject to the satisfaction or waiver of the following conditions:
(a) the receipt of regulatory approval under the HSR Act and the
expiration of any applicable waiting period with respect thereto;
(b) the Closing will not violate any injunction, order or decree of
any court or governmental body having competent jurisdiction;
(c) ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall have entered into
the Employment Agreements on terms and conditions which have been agreed to
by Investor and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, respectively,
prior to the date of this Agreement;
(d) Shareholder Agreement. The Major Shareholder and FSEP IV shall
---------------------
have entered into a Shareholder Agreement substantially on the terms
described in the Shareholder Agreement term sheet (the "SHAREHOLDER
AGREEMENT TERM SHEET") attached hereto as Exhibit E.
---------
(e) Registration Rights Agreement. The Selling Shareholders and FSEP
-----------------------------
IV shall have entered into a Registration Rights Agreement substantially on
the terms described in the Shareholder Agreement Term Sheet;
SECTION 8.2 Conditions to the Obligations of Investor. The obligations
-----------------------------------------
of Investor to effect the transactions contemplated hereby are subject to the
satisfaction or waiver of the following conditions:
32
(a) all representations and warranties of the Selling Shareholders in
Article III of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and at and as of the Closing,
with the same force and effect as though made on and as of the Closing,
except to the extent that such representations and warranties speak as of
an earlier date, and except for any representations and warranties
qualified by materiality or Material Adverse Effect limitations which will
instead be true and correct in all respects;
(b) the representations and warranties of the Major Shareholder in the
first two sentences of Section 4.1(a), in Sections 4.1(b) and (c), 4.2,
-------------- -----------------------------
4.3, 4.4, Section 4.6, and in Sections 4.10, 4.11, 4.22 and 4.23 of this
----------------------------------------------------------------
Agreement shall be true and correct in all material respects as of the date
of this Agreement and at and as of the Closing, with the same force and
effect as though made on and as of the Closing, except to the extent that
such representations and warranties speak as of an earlier date, provided
that the second sentence of Section 4.6 shall be true and correct in all
-----------
respects;
(c) the representations and warranties of the Major Shareholder in
Article IV other than those described in Section 8.2(b) above which are
--------------
qualified by materiality or Material Adverse Effect limitations shall be
true and correct in all respects as of the date of this Agreement and as of
the Closing, with the same force and effect as though made on the Closing,
except to the extent that such representations and warranties speak as of
an earlier date;
(d) any breaches of the representations and warranties of the Major
Shareholder in Article IV of this Agreement other than those described in
Sections 8.2(a) and (b) above shall, in the aggregate, not constitute a
-----------------------
Material Adverse Effect;
(e) the Selling Shareholders and the Corporation shall have performed
in all material respects all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed or
complied with by them prior to the Closing;
(f) all consents, approvals and waivers from third parties and
Governmental Authorities required to be obtained to consummate the
transactions contemplated by this Agreement shall have been obtained;
(g) the Selling Shareholders shall have delivered to Investor
certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock powers), for transfer and other good and sufficient
instruments of transfer, reasonably satisfactory in form and substance to
Investor, as shall be effective to vest in Investor all of Selling
Shareholders' right, title and interest in and to the Shares;
(h) Opinion of Corporation's Counsel. Investor shall have been
--------------------------------
furnished at the Closing with an opinion of Corporation's counsel dated as
of the Closing Date, on substantially the terms as attached hereto as
Exhibit F;
---------
(i) No Material Adverse Change. There shall not have occurred any
--------------------------
event, circumstance or occurrence which has resulted in or constituted or
could reasonably be expected to result in or constitute a material adverse
change in the business, financial
33
condition, results of operations, prospects, assets or liabilities of the
Corporation and the Subsidiaries, taken as a whole, except for changes that
effect the regional economy and financial markets in the regions in which
the Corporation and the Subsidiaries operate generally or which effect the
United States economy or the financial markets generally;
(j) Agreement Not to Compete. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, FSEP IV, CAC and the
------------------------
Corporation shall have entered into an agreement not to compete,
substantially in the form attached hereto as Exhibit G;
---------
(k) Closing Certificate. Investor shall have received a closing
-------------------
certificate certifying that the matters referenced in (a), (b), (c), (d),
(e) and (j) above are true and correct as of the Closing;
(l) Lease Amendments. Corporation shall have caused to be made such
----------------
amendments to the affiliated real property leases described on the term
sheet attached hereto as Exhibit H;
---------
(m) Trademark Assignment. The Major Shareholder and CAC shall have
--------------------
provided the Corporation with a trademark assignment relating to certain
trademarks owned by the Major Shareholder and CAC as set out on Schedule
--------
8.2(m) in substantially the form attached hereto as Exhibits I-1 and I-
------ ------------------
1.1. The Corporation shall have entered into a license agreement with CAC
----
in substantially the form attached hereto as Exhibit I-2.
------------
(n) Senior Credit Facilities. The Corporation shall be prepared to
------------------------
perform its obligation to close the $125,000,000 Senior Secured Credit
Facilities on substantially the same terms as set out in a certain
commitment letter (the "COMMITMENT LETTER") by and between Salomon Brothers
Holding Company, Inc., Salomon Brothers, Inc. and Investor (the "NEW CREDIT
FACILITY"); and
(o) 1997 Incentive Stock Plan. The Corporation's 1997 Incentive Stock
-------------------------
Plan shall have been amended to the extent Investor has requested
reasonable amendments thereto, including to ensure that Options will
terminate in certain merger and change of control transactions occurring
after the Merger.
(p) Lease. The Lease between the Corporation and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----
or an entity or partnership owned or controlled by ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
regarding the new Stafford, Texas facility has been executed in form and
substance agreeable to Investor, and will contain customary mortgagee
protection provisions.
SECTION 8.3 Conditions to the Obligations of Selling Shareholders. The
-----------------------------------------------------
obligations of the Selling Shareholders to effect the transactions contemplated
hereby are subject to the satisfaction or waiver of the following conditions:
(a) all representations and warranties of Investor contained herein
shall be true and correct in all material respects as of the date of this
Agreement and at and as of the Closing, with the same force and effect as
though made on and as of the Closing, except to the extent that such
representations and warranties speak as of an earlier date, and except for
34
any representations and warranties qualified by materiality or Material
Adverse Effect limitations which will instead be true and correct in all
respects;
(b) Investor and FSEP IV shall have performed in all material respects
all obligations and agreements and complied with all covenants and
conditions contained in this Agreement to be performed or complied with by
them prior to the Closing;
(c) Concurrent with the Merger, the Major Shareholder shall be
released from the personal guaranties described in Schedule 8.3(c) hereto;
---------------
(d) Concurrent with the Merger, all indebtedness of the Corporation
and the Subsidiaries set out on Schedule 8.3(d) shall be repaid;
---------------
(e) Concurrent with the Merger, all indebtedness (and accrued but
unpaid interest) of the Corporation and the Subsidiaries to the Major
Shareholder as set out on Schedule 8.3(e) hereto shall be repaid;
----------------
(f) receipt of the Cash Merger Consideration, the Preferred Stock
Merger Consideration and all other amounts payable by the Investor
hereunder;
(g) Opinion of Investor's Counsel. Corporation shall have been
-----------------------------
furnished at the Closing with an opinion of Investor's and FSEP IV's
counsel, dated the Closing Date, on substantially the terms as attached
hereto as Exhibit J;
---------
(h) Capitalization of Investor; Financing. Subject to the terms of
-------------------------------------
the equity investment letter by and between Investor and FSEP IV, dated the
same date as this Agreement, FSEP IV shall have contributed at least
$68,326,186 million to Investor in exchange for common stock of Investor.
The New Preferred Stock shall have been purchased by FSEP IV or by third
party purchasers for gross proceeds of up to $37.5 million in accordance
with the terms of the Preferred Stock Term Sheet.
ARTICLE IX
TERMINATION
SECTION 9.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated by this Agreement may be abandoned at any time prior
to the Closing Date:
(a) by mutual written consent of Investor, Selling Shareholders and
Corporation;
(b) by Investor, if a material breach or default shall be made by the
Corporation or Selling Shareholders in their representations and warranties
or in their observance or due and timely performance of any of the
covenants, agreements or conditions contained herein, provided that
Investor's right to terminate this Agreement in accordance with this
Section 9.1(b) is subject to the right of Corporation or such Selling
--------------
Shareholders to cure any such breach or inaccuracy that is curable within
10 days after written notice thereof by Investor to such party;
35
(c) by Corporation and Selling Shareholders, if a material breach or
default shall be made by Investor in their representations and warranties
or in their observance or due and timely performance of any of the
convents, agreements or conditions contained herein, provided that such
right to terminate this Agreement in accordance with this Section 9.1(c) is
--------------
subject to the right of Investor to cure any such breach or inaccuracy that
is curable within 10 days after written notice thereof by Corporation and
Selling Shareholders to Investor;
(d) by Investor, on the one hand, or Corporation and Selling
Shareholders, on the other, if the Closing Date shall not have occurred,
other than through the failure of the party attempting to terminate to
fulfill their obligations hereunder, on or before the expiration of 45 days
from the date of this Agreement or such later date agreed to in writing by
Corporation, Selling Shareholders and Investor; provided, however, that
such 45 day period shall automatically be extended for a period of (i) 60
days if the delay in the Closing Date relates to the Notification and
Report Form filed pursuant to the HSR Act, and (ii) 15 days if the delay in
the Closing Date relates to the closing of the financing contemplated by
the Commitment Letter and/or the sale of the New Preferred Stock
contemplated by Section 8.2(p) of this Agreement;
--------------
(e) by Investor or Corporation and Selling Shareholders if any court
of competent jurisdiction shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated hereby; or
(f) by Investor if the Audited 1997 Financial Statements differ from
the Unaudited 1997 Financial Statements and such difference is adverse in
any respect and Investor gives Corporation notice of such adverse
difference within five days after Investor's receipt of the Audited 1997
Financial Statements.
SECTION 9.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 9.1 of this Agreement, this
-----------
Agreement shall forthwith become void and have no effect, without any liability
on the part of any party or its directors, officers or shareholders, other than
the provisions of this Section 9.2, Section 7.3 and Section 11.1. Nothing
----------- ----------- ------------
contained in this Section 9.2 shall relieve any party from liability for any
-----------
breach or violation of this Agreement, or limit the remedies (including the
remedy of specific performance) of any party to this Agreement relating to such
breach or violation of this Agreement.
ARTICLE X
INDEMNIFICATION
SECTION 10.1 Indemnification.
---------------
(a) Subject to the limitations set out in this Article X, (i) the
Selling Shareholders shall, severally but not jointly, indemnify, defend
and hold harmless Investor and FSEP IV and their respective officers,
directors and employees against and with respect to any and all claims,
actions, suits or other proceedings and any and all costs, liabilities,
losses, claims, damages (excluding incidental and consequential damages and
lost profits and excluding the "SPECIAL INDEMNITY LOSSES", as defined
below), penalties, fines and reasonable out-of-pocket costs and expenses
(including reasonable attorney's fees) (collectively, "LOSSES") resulting
from or arising out of any breach of any representation and warranty of the
Selling
36
Shareholders set out in Article III of this Agreement or the breach or
failure of performance by such Selling Shareholders of any of the covenants
that they or the Corporation and the Subsidiaries are to perform hereunder;
(ii) the Major Shareholder shall indemnify, defend and hold harmless the
Investor and FSEP IV against and with respect to any Losses resulting from
or arising out of any breach of any representation or warranty of the Major
Shareholder set out in Article IV of this Agreement, or the breach or
failure of performance by the Major Shareholder of any of the covenants
that it or the Corporation and the Subsidiaries is to perform hereunder;
and (iii) the Major Shareholder shall indemnify and hold harmless the
Surviving Corporation and FSEP IV for any Special Indemnity Losses and will
not seek indemnification from the Corporation in any capacity with respect
to the Special Indemnity Losses. For purposes of this Agreement, the term
"SPECIAL INDEMNITY LOSSES" shall mean all costs, liabilities, losses,
claims, damages (excluding incidental and consequential damages and lost
profits), penalties, fines and reasonable out-of-pocket costs and expenses
(including reasonable attorney's fees) resulting from or arising out of or
related to (i) the ownership of the real estate formerly owned by the
Corporation as described on Schedule 4.14 attached hereto, including with
-------------
respect to environmental matters; (ii) the termination of employment of
▇▇▇▇ ▇. ▇▇▇▇▇ and/or the repurchase by the Corporation of his shares of
Corporation Common Stock prior to the Effective Time; (iii) the conduct or
actions of ▇▇▇▇ ▇. ▇▇▇▇▇ while an employee of the Corporation or the
Subsidiaries, including claims, actions, suits or proceeding resulting from
or arising out of or related to the conduct or actions of ▇▇▇▇ ▇. ▇▇▇▇▇;
(iv) the ownership of the Corporation and/or the Subsidiaries of a general
partnership interest in the general partnerships owning the real estate
described in Schedule 10.1(a) attached hereto; (v) claims, actions, suits
----------------
or other proceedings brought by or on behalf of any Selling Shareholder, or
any option holder, which are related to the Merger or transactions
contemplated by this Agreement; and (vi) claims, actions, suits or other
proceedings brought by or on behalf of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
(b) Subject to the limitations set out in this Article X, Investor
shall indemnify, defend and hold harmless the Corporation and the Selling
Shareholders against and with respect to any and all Losses resulting from
or arising out of any breach of any representation and warranty of the
Investor set out in Article V of this Agreement, or the breach or failure
of performance by Investor of any of the covenants that they are to perform
hereunder.
(c) If any party (an "INDEMNIFIED PARTY") becomes aware of a fact,
circumstance, claim or demand or other matter (a "CLAIM") which has or
could result in a liability being owed to the Indemnified Party under this
Article X by another party to this Agreement (an "INDEMNIFYING PARTY"), the
Indemnified Party shall give prompt written notice to the Indemnifying
Party of the Claim, stating the nature and basis of the Claim, and the
amount thereof, together with any supporting information to the Claim. If
the Indemnifying Party does not notify the Indemnified Party within 30 days
from the date such Claim notice is given that it disputes such Claim, the
amount of the Claim shall conclusively be deemed a liability of the
Indemnifying Party. If an Indemnified Party and an Indemnifying Party
cannot reach agreement with respect to the validity or amount of a Claim
within 90 days after notice thereof is first given, the validity and amount
thereof shall be determined by due process of law in a court of competent
jurisdiction or by such other means (including mediation and arbitration)
as the parties shall agree on, subject in all cases to the limitations set
out in Section 10.2 below.
------------
37
(d) Promptly after receipt by an Indemnified Party hereunder of
written notice of the commencement of any action or proceeding by a third
party (i.e., one who is not a party to this Agreement) with respect to
which a Claim for indemnification may be made pursuant to this Article X,
such Indemnified Party shall, if a Claim in respect thereof is to be made
against any Indemnifying Party, give written notice to the latter of the
commencement of such third party action; provided, however, that the
failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of any obligations hereunder, to the
extent the Indemnifying Party is not materially prejudiced thereby. In
case any such third party action is brought against an Indemnified Party
and indemnification is sought under this Article X, the Indemnifying Party
shall be entitled to participate in and to assume the defense thereof,
jointly with any other Indemnifying Party similarly notified, to the extent
that it may wish, with counsel reasonably satisfactory to such Indemnified
Party, and after such notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party shall not be liable to such Indemnified Party for any
legal or other expenses subsequently incurred by the latter in connection
with the defense thereof unless the Indemnifying Party has failed to assume
the defense of such Claim and to employ counsel reasonably satisfactory to
such Indemnified Party. An Indemnifying Party who elects not to assume the
defense of a Claim shall not be liable for the fees and expenses of more
than one counsel in any single jurisdiction for all parties indemnified by
such Indemnifying Party with respect to such Claim or with respect to
Claims separate but similar or related in the same jurisdiction arising out
of the same general allegations. Notwithstanding any of the foregoing to
the contrary, the Indemnified Party will be entitled to select its own
counsel and assume the defense of any action brought against it if the
Indemnifying Party fails to select counsel reasonably satisfactory to the
Indemnified Party, the expenses of such defense to be paid by the
Indemnifying Party. No Indemnifying Party shall consent to entry of any
judgment or enter into any settlement with respect to a third party Claim
without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld, or unless such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such
third party Claim. No Indemnified Party shall consent to entry of any
judgment or enter into any settlement of any such third party action, the
defense of which has been assumed by an Indemnifying Party, without the
consent of such Indemnifying Party, which consent shall not be unreasonably
withheld.
SECTION 10.2 Limitations on Claims.
---------------------
(a) An Indemnified Party's right to recover Losses under Section 10.1
------------
of this Agreement shall be limited as follows:
(i) Other than with respect (X) to a breach by any Selling
Shareholder or the Major Shareholder of their respective
representations contained in Sections 3.1 through 3.4, Sections 4.1
------------ --- ------------
through 4.4, or Section 4.22 of this Agreement or a breach by the
--- ------------
Major Shareholder or the Corporation or any of its Subsidiaries, of a
covenant or agreement made by them under this Agreement, (Y) a breach
by Investor of its representations and warranties contained in Section
-------
5.1 through Section 5.6 of this Agreement, or a breach by Investor or
--- -----------
FSEP IV of a covenant or agreement made by them under this Agreement,
and (Z) the obligation of the Major Shareholder under Article 10.1 to
pay any Special Indemnity Losses, an Indemnified Party shall make
38
no claim for any Losses except and only to the extent that the amount
of the Losses, when added to the aggregate amount of all other Losses
recoverable under this Article X by the Indemnified Party, exceeds
$750,000 and only to the extent of such excess; and
(ii) Other than with respect to (X) a breach by any Selling
Shareholder or the Major Shareholder of their respective
representations contained in Sections 3.1 through 3.4, Sections 4.1
------------ --- ------------
through 4.4, or Sections 4.10, 4.11, 4.14 and 4.22 of this Agreement,
----------------------------------
or a breach by the Major Shareholder or the Corporation or any of its
subsidiaries of a covenant or agreement made by them under this
Agreement, (Y) a breach by Investor of its representations and
warranties contained in Sections 5.1 through Section 5.6 of this
------------ -----------
Agreement or a breach by Investor or FSEP IV of any covenant or
agreement made by Investor or FSEP IV under this Agreement, and (Z)
the obligation of the Major Shareholder under Section 10.1 to pay any
------------
Special Indemnity Losses, neither Investor nor FSEP IV, on the one
hand, nor the Corporation and the Selling Shareholders, on the other
hand, shall recover any Losses exceeding the amount of $20,000,000.
(b) Before seeking recovery for Losses or Special Indemnity Losses, an
Indemnified Party shall first pursue recovery under any applicable
insurance policy (including in the case of the Investor, FSEP IV and the
Surviving Corporation insurance policies held by the Corporation and the
Subsidiaries), but notice may be given to the Indemnifying Party to toll
the running of the survival period under this Agreement. Any Losses or
Special Indemnity Losses recoverable hereunder shall be limited to the
amount of the actual Losses sustained by the Indemnified Party, net of any
applicable insurance benefits actually received and any tax benefits
reasonably anticipated to be realized by the Corporation during post-
Closing periods.
(c) An Indemnified Party shall not be entitled to make any Claim for
recovery of Losses or Special Indemnity Losses after the periods specified
in Section 11.2 of this Agreement, unless the Indemnified Party shall
------------
assert such Claim in accordance with this Article X, and shall specify, in
reasonable detail the specific facts constituting the basis for such Claim
prior to the end of such periods, as applicable.
(d) The remedies provided under this Article X shall be the exclusive
monetary remedies available to any party to this Agreement; provided,
however, that the foregoing shall not be interpreted to limit the types of
remedies, including specific performance or other equitable remedies, which
may be sought by an Indemnified Party in connection with the breach of any
covenant or agreement contained herein, and shall not limit any available
remedy for a willful misrepresentation or breach by another party.
39
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Expenses. Upon consummation of the Merger, the Surviving
--------
Corporation shall pay (a) a $4 million fee payable to an affiliate of FSEP IV,
(b) all legal, accounting, advisory and other fees and expenses of Investor in
connection with the transactions contemplated by this Agreement, (c) up to $4.5
million of the legal, accounting, financial advisory and other fees and expenses
incurred by Selling Shareholders in connection with the transactions
contemplated by this Agreement, (d) all costs and expenses, including reasonable
fees and expenses of legal counsel, related to the negotiation and preparation
of documentation of the $125,000,000 Senior Secured Credit Facilities and the
New Preferred Stock issued to FSEP IV or third parties, (e) if payable, a
funding fee to ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ with respect to the placement of the New
Preferred Stock to third parties or payable to FSEP IV or its affiliate as
provided in the Preferred Stock Term Sheet, and (f) without duplication, and
without regard to whether incurred under Section 11.1 (b) or (d) above, the fees
and expenses of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ payable by the Corporation which shall not
exceed $750,000. All other fees and expenses incurred by Selling Shareholders
in connection with the transactions contemplated by this Agreement shall be paid
by such parties. If the Merger is not consummated, each party hereto will bear
its own costs and expenses.
SECTION 11.2 Governing Law; Forum Selection; Consent to Service of
-----------------------------------------------------
Process.
--------
(a) This Agreement shall be construed and interpreted under and in
accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of
laws.
(b) The parties hereto agree that any action, suit or proceeding (a
"PROCEEDING") arising out of the transactions contemplated by this
Agreement shall be commenced and litigated exclusively in the United States
District Court for the District of Delaware or in a state court of the
State of Delaware.
(c) Each of the parties hereto hereby irrevocably and unconditionally
(i) consents to submit to the exclusive jurisdiction of the federal and
state courts in the State of Delaware for any Proceeding (and each such
party agrees not to commence any Proceeding, except in such courts), (ii)
waives any objection to the laying of revenue of any Proceeding in the
courts of the State of Delaware, and (iii) waives, and agrees not to plead
or to make, any claim that any Proceeding brought in any court of the State
of Delaware has been brought in an improper or otherwise inconvenient
forum.
(d) Each party hereto (including, without limitation, each Selling
Shareholder) hereby irrevocably designates and appoints RL&F Service Corp.,
with offices on the date of this Agreement at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (hereinafter called the "AGENT"), as its
attorney-in-fact to receive service of process in such Proceeding, it being
agreed that service upon such attorney-in-fact shall constitute valid
service upon each such party or its successors or assigns, and each party
agrees that (i) the sole responsibilities of the Agent shall be (x) to
receive such process, (y) to send a copy of any such process so received to
such party, by registered airmail, return receipt requested, at the address
set out in Section 11.10 or Schedule 11.10 of this Agreement, or at the
-------------
last address filed in writing by such party with the Agent and (z) to give
prompt telegraphic notice of receipt thereof to
40
such party at such address, and (ii) the Agent shall have no responsibility
for the receipt or non-receipt by such party of such process, nor for any
performance or non-performance by such party, or any other party to this
Agreement or their successors or assigns. The Corporation hereby agrees to
pay to the Agent such compensation as shall be agreed upon from time to
time for services of the Agent hereunder. Each party hereby agrees that its
submission to jurisdiction and its designation of the Agent set out above
is made for the express benefit of each of the parties hereto. Each party
further covenants and agrees that so long as this Agreement shall be in
effect, such party shall maintain a duly appointed agent for the service of
summonses and other legal processes in Wilmington, Delaware and will notify
the other parties hereto of the name and address of such agent if it is no
longer the Agent.
SECTION 11.3 Survival and Exclusivity of Representations and Warranties.
----------------------------------------------------------
The parties hereto agree that their respective representations and warranties
contained in this Agreement shall survive for a period of eighteen (18) months
after the Closing Date; provide, however, that the representations and
warranties of the Selling Shareholders, the Major Shareholder and the Investor
contained in Sections 3.1 through 3.4, Sections 4.1 through 4.4, and Sections
------------ --- ------------ --- --------
5.1 through 5.6, as well as all covenants and agreements contained herein, shall
--- ---
survive without limitation, and the representations contained in Section 4.10,
------------
Section 4.11 and Section 4.14 shall survive for the applicable statutes of
------------ ------------
limitations. The obligation of the Major Shareholder to pay any Special
Indemnity Losses shall survive until the expiration of the statutes of
limitation applicable to the matters giving rise to the obligation to pay such
Special Indemnity Losses. The Investor and FSEP IV acknowledge that they have
agreed to complete the Merger based solely on the representations and warranties
of the Corporation and the Selling Shareholders expressly set out in this
Agreement (which are the only representations and warranties made by Major
Shareholder and the Selling Shareholders) and the due diligence investigation
made by Investor and FSEP IV. Investor has not relied on, and the Corporation
and the Selling Shareholders shall have no liability arising out of, any other
information provided by or on behalf of the Corporation and the Selling
Shareholders in connection with the Investor's and FSEP IV's decision to
complete the Merger. Without limiting the generality of the foregoing, Investor
acknowledges and agrees that prior to and during the negotiation of this
Agreement, the Corporation prepared various projections, forecasts and budgets
relating to the Corporation and the Subsidiaries and their future revenues,
income, cash flows, and other economic data, including the underlying
assumptions and basis thereof (collectively, the "FORECASTS"). The Forecasts,
together with certain other information pertaining to the investment
considerations, history, operations, and market, industry, and similar data of
or relating to the Corporation and the Subsidiaries were set out in a
Confidential Memorandum delivered to the Investor (the "MEMORANDUM").
The Investor agrees that it has not relied on the Forecasts or the
Memorandum, or the Corporation's and the Selling Shareholders' or their agents'
participation in the preparation thereof, for any purpose, including in the
Investor's determination to enter into this Agreement or to purchase the Shares.
The Corporation and the Selling Shareholders and their respective agents and
representatives shall have no responsibility, liability, or obligation relating
in any way, directly or indirectly, for the Forecasts or the Memorandum, the
participation of the Corporation and the Selling Shareholders or their agents in
their preparation, or the use or distribution thereof by Investor. The
Forecasts and the Memorandum do not constitute representations or warranties of
the Corporation and the Selling Shareholders for purposes of this Agreement.
The Investor further acknowledges that the Forecasts and the Memorandum include
assumptions, estimates, and projections about future
41
results of operations of the Corporation and the Subsidiaries and general
business conditions that have been prepared by the Corporation and the
Subsidiaries, and as such, the Forecasts and the Memorandum are inherently
uncertain, and the actual results of the business operations of the Corporation
and the Subsidiaries will vary, and may vary by material amounts, from those
contained in the Forecasts and the Memorandum.
SECTION 11.4 Public Announcements. Any public announcement or similar
--------------------
publicity with respect to this Agreement or the transactions contemplated hereby
shall be issued, if at all, at such time and in such manner as the Investor and
Selling Shareholders shall jointly determine. The Investor and Selling
Shareholders will consult with each other concerning the means by which the
Corporation's and the Subsidiaries' employees, customers and suppliers and
others having dealings with the Corporation and the Subsidiaries will be
informed of the transactions contemplated hereby.
SECTION 11.5 Consent to Merger. By execution of this Agreement, each of
-----------------
the Selling Shareholders hereby consents to the Merger, the Stock Split and the
Restated Certificate of Incorporation of the Surviving Corporation contemplated
by Section 2.4 of this Agreement, pursuant to Sections 228 and 251 of the GCL.
-----------
SECTION 11.6 Entire Agreement; Assignment. This Agreement (a) constitutes
----------------------------
the entire agreement among the parties with respect to the subject matter of
this Agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties or any of them with respect to the
subject matter of this Agreement, and (b) may not prior to the Effective Time,
be assigned by operation of law or otherwise; provided, that the Corporation may
assign its rights under this Agreement to any lender in connection with any
indebtedness incurred by the Corporation, and the Corporation and FSEP IV may
assign their rights to any entity or group which, after the Effective Time,
purchases all or substantially all of the assets or capital stock of the
Corporation, or which acquires all of the capital stock of the Corporation held
by FSEP IV, or which succeeds to the rights of the Corporation by operation of
law.
SECTION 11.7 Amendments; Waiver; Consents. All amendments to this
----------------------------
Agreement must be in writing and signed by all of the parties hereto; provided,
however, that each of the Selling Shareholders other than the Major Shareholder
hereby grants to the Major Shareholder a limited, irrevocable power of attorney
to act as the agent and attorney in fact for such Selling Shareholder, without
power of substitution, for the sole purpose of approving any amendments to or
waivers of this Agreement on behalf of each Selling Shareholder, other than an
amendment to the provisions of Sections 2.7, 2.8, 11.1 and 11.6 and Articles III
--------------------------------
and X of this Agreement or any other amendment or waiver pertaining to this
Agreement which would amend the consideration to be received by Selling
Shareholder in the Merger or the liability of each Selling Shareholder for
breaches of representations and warranties made by such Selling Shareholder
under this Agreement, it being expressly understood and agreed that this
limited, irrevocable power of attorney is coupled with an interest and shall
expire on the earlier to occur of the Effective Time or the termination of this
Agreement in accordance with Article IX of this Agreement. The rights and
remedies of the parties to this Agreement are cumulative and not alternative.
Any failure of a party to comply with any obligation, covenant, agreement or
condition herein may be waived by the party affected thereby only by a written
instrument signed by the party granting such waiver. No waiver, or failure to
insist upon strict compliance, by any party of any condition or any breach of
any obligation, term, covenant, representation, warranty or agreement contained
in this Agreement, in any one or more instances, shall be construed to be a
waiver of, or estoppel with respect to, any other condition or any
42
other breach of the same or any other obligation, term, covenant,
representation, warranty or agreement. Whenever this Agreement requires or
permits consent by or on behalf of any party hereto, such consent shall be given
in writing in a manner consistent with the requirements for a waiver.
SECTION 11.8 Further Assurances. From time to time as and when requested
------------------
by Investor, or its successors or assigns, Selling Shareholders and the officers
and directors of the Corporation shall execute and deliver such further
agreements, documents, deeds, certificates and other instruments and shall take
or cause to be taken such other actions as shall be reasonably necessary or
advisable to carry out the purposes of and effect the transactions contemplated
by this Agreement.
SECTION 11.9 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 11.10 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by telecopy or telex, or by registered or
certified mail (postage prepaid, return receipt requested), to the respective
parties as follows:
if to Investor or FSEP IV:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Co. Incorporated
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
California Plaza
29th Floor, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
if to the Corporation or the Selling Shareholders:
Century Maintenance Supply, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
43
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set out above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 11.11 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 11.12 Descriptive Headings. The descriptive headings are inserted
--------------------
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 11.13 Parties in Interest; No Third Party Beneficiary. This
-----------------------------------------------
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to confer
upon any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 11.14 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 11.15 Incorporation by Reference. Any and all schedules,
--------------------------
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set out at the point referred to in the
Agreement.
SECTION 11.16 Guarantee.
---------
(a) FSEP IV hereby unconditionally and irrevocably guarantees to the
Corporation and the Selling Shareholders the due and punctual performance
of each of the obligations and the undertakings of Investor under this
Agreement when and to the extent the same are required to be performed and
subject to all of the terms and conditions of this Agreement; provided,
that FSEP IV shall have no liability whatsoever under this Guaranty after
the Closing, whether based upon events occurring prior to or after the
Closing. If Investor shall fail to perform fully and punctually any
obligation or undertaking of Investor under this Agreement when and to the
extent the same is required to be performed, FSEP IV will upon written
demand from the Selling Shareholders forthwith perform or cause to be
performed such obligation or undertaking, as the case may be. The
obligations of FSEP IV under this guaranty shall constitute an absolute and
unconditional present and continuing
44
guarantee of performance to the extent provided herein, and shall not be
contingent upon any attempt by the Corporation or the Selling Shareholders
to enforce performance by Investor.
(b) The obligations of FSEP IV under this guaranty are absolute and
unconditional, are not subject to any counterclaim, setoff, deduction,
abatement or defense based upon any claim FSEP IV may have against the
Corporation or the Selling Shareholders (except for any defense Investor or
FSEP IV may have against the Corporation or the Selling Shareholders under
the terms of this Agreement), and shall remain in full force and effect
without regard to (i) any agreement or modification to any of the terms of
this Agreement or any other agreement which may hereafter be made relating
thereto; (ii) any exercise, non-exercise or waiver by the Corporation or
the Selling Shareholders of any right, power, privilege or remedy under or
in respect of this Agreement; (iii) any insolvency, bankruptcy,
dissolution, liquidation, reorganization or the like of Investor at or
prior to the Closing; (iv) absence of any notice to, or knowledge by, FSEP
IV of the existence or occurrence of any of the matters or events set out
in the foregoing clauses (i) through (iii); or (v) any transfer of shares
of capital stock of Investor, or any assignment by Investor of its rights
and obligations under this agreement, to a wholly-owned subsidiary of
Investor or FSEP IV.
(c) FSEP IV unconditionally waives (i) any and all notice of default,
non-performance or non-payment by Investor under this Agreement, (ii) all
notices which may be required by statute, rule of law or otherwise to
preserve intact any rights of the Corporation or the Selling Shareholders
against FSEP IV, including, without limitation, any demand, presentment or
protest, or proof of notice of non-payment under this Agreement, and (iii)
any right to the enforcement, assertion or exercise by the Corporation or
the Selling Shareholders of any right, power, privilege or remedy conferred
in this Agreement or otherwise.
45
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
INVESTOR:
CENTURY ACQUISITION CORPORATION
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Title:
-------------------------------
FSEP IV:
FS EQUITY PARTNERS IV
By: /s/ ▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
Title: Vice President
------------------------------
CORPORATION:
CENTURY MAINTENANCE SUPPLY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Title: Vice President
------------------------------
SELLING SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
46
CENTURY AIR CONDITIONING SUPPLY, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Title: Vice President
------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
/s/ R. ▇▇▇▇▇ ▇▇▇
------------------------------------
R. ▇▇▇▇▇ ▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
47
