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Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement"), dated as of
September 30, 1997, by and among Service Experts, Inc., a Delaware corporation
("SEI"), and each of the shareholders (each, a "Shareholder" and collectively,
the "Shareholders") of ▇▇▇▇▇▇▇ Mechanical, Inc., an Idaho corporation (the
"Company").
W I T N E S S E T H :
WHEREAS, the Company operates a heating, ventilating and air
conditioning ("HVAC") service and replacement business;
WHEREAS, the Shareholders own all of the issued and outstanding shares
of the capital stock of the Company (the "Shares");
WHEREAS, the Shareholders wish to transfer to SEI, and SEI desires to
acquire, all of the Shares intended to qualify as a reorganization within the
meaning of Section 368(a)(1)B of the Internal Revenue Code of 1986 as amended;
and
WHEREAS, it is intended that the transaction be accounted for as a
pooling of interests for financial accounting purposes.
NOW, THEREFORE, in consideration of the mutual premises and covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of all of which are hereby acknowledged, the parties adopt this plan
of reorganization and agree as follows:
Section 1. Transfer of Shares. In accordance with the terms and
conditions set forth herein, the Shareholders hereby transfer, convey, assign
and deliver, and SEI hereby purchases, all of the Shares free and clear of any
and all liens, claims and encumbrances whatsoever (the "Transfer").
Section 2. Exchange Price; Exchange of Certificates.
(a) Exchange Price. As of the Closing Date (as hereinafter
defined) and subject to the provisions of this Section 2, in exchange
for certificates representing all of the Shares, SEI shall deliver to
the Shareholders an aggregate of $3,919,059 (the "Exchange Price"),
consisting of certificates representing 145,150 shares of Common Stock,
par value $.01 per share, of SEI (the "SEI Common Stock") which is
equal to the quotient of the Exchange Price (subject to the adjustments
set forth in Section 2(e) below), divided by $27.00 (the "Closing
Price").
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(b) Escrow Agreement. An aggregate of 10% of the Exchange Price shall be
held in escrow pursuant to the terms and conditions of the escrow agreement
attached hereto as Schedule 2(b) (the "Escrow Agreement").
(c) Fractional Shares. No fractional shares of SEI Common Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional share of SEI
Common Stock, each Shareholder shall be entitled to receive an additional share
of SEI Common Stock.
(d) Adjustment of Shares of Stock. In the event that, subsequent to the
date of this Agreement but prior to the Closing Date, the outstanding shares of
SEI Common Stock shall have been changed into a different number of shares or a
different class as a result of a stock split, reverse stock split, stock
dividend, subdivision, reclassification, split, combination, exchange,
recapitalization or other similar transaction, the number of shares of SEI
Common Stock to be delivered pursuant to this Agreement shall be appropriately
adjusted.
(e) Postclosing Adjustments to Exchange Price.
(i) Promptly following the Closing Date, SEI will prepare a balance
sheet of the Company as of the close of business on the Closing Date (the
"Closing Balance Sheet"), which shall be prepared based on certain
procedures performed by SEI's independent certified public accountants. SEI
shall provide the Shareholders with the Closing Balance Sheet within
forty-five (45) days following the Closing Date.
(ii) Subject to the provisions of Section 2(e)(iii) below, within
ninety (90) days after the Closing Date (or as soon thereafter as
possible), the parties shall make the following adjustments to the Exchange
Price (the "Post Closing Adjustments"):
(A) In the event the Company's shareholders' equity (as presented
in the Closing Balance Sheet is less than $844,104.00, the Exchange
Price will be reduced by an amount equal to the capital contribution
required to result in shareholders' equity equaling $844,104.00.
(B) In the event a Shareholder is indebted to the Company, the
Exchange Price payable to such Shareholder will be reduced by an
amount equal to the indebtedness owing to the Company at the time of
the Closing.
(C) In the event the Closing Balance Sheet includes any
indebtedness (including without limitation notes, leases or other
contingent liabilities), other than (i) accounts payable less than
sixty (60) days old as of the Closing Date and (ii) as set forth on
Schedule 2(e)(ii)(C) attached
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hereto, the Exchange Price will be reduced by an amount equal to the
indebtedness outstanding on the Closing Date.
(D) SEI shall deliver a schedule to the Shareholders detailing
any Post Closing Adjustments and detailing the differences between the
Exchange Price, as adjusted, and the amount paid as the Exchange Price
on the Closing Date. Such schedule shall be delivered to the
Shareholders with a copy of the Closing Balance Sheet.
(iii) Should the Shareholders dispute the Post Closing Adjustments
proposed by SEI or the accuracy of the Closing Balance Sheet, they shall
promptly (and in no event later than twenty (20) days after receipt of the
Closing Balance Sheet and the required schedule of Post Closing Adjustments)
advise SEI in writing. If after thirty (30) days after delivery of the Closing
Balance Sheet, SEI and the Shareholders are unable to agree upon the amount of
the Post Closing Adjustments, the Shareholders and SEI shall engage any "Big
Six" certified public accounting firm not under contract with either the
Company, a Shareholder or SEI (the "Accountants") to review the Closing Balance
Sheet and the proposed Post Closing Adjustments and determine the amount
thereof, such determination to be made as soon as practicable. In making such
review and determination, the Accountants shall utilize the terms and provisions
of this Agreement including, without limitation, the provisions of Section
2(e)(v) hereof. The decision of the Accountants shall be binding on both the
Shareholders and SEI. Each of SEI and the Shareholders shall pay one-half of the
reasonable expenses of the engagement of the Accountants.
(iv) Within thirty (30) days of the Shareholders' receipt of the
Closing Balance Sheet and the required schedule of Post Closing Adjustments (or,
if the Shareholders dispute the Post Closing Adjustments, within ten (10) days
of the resolution or determination of the adjustments in accordance with Section
2(e)(iii) above), either (A) the Shareholders shall pay SEI either in the form
of shares of SEI Common Stock (valued at the average closing sales price of a
share of SEI Common Stock for the five trading days immediately preceding the
date of payment) or in the form of cash, the amount by which the Exchange Price
paid on the Closing Date exceeds the Exchange Price, as adjusted, or (B) SEI
shall pay the Shareholders in the form of shares of SEI Common Stock (valued at
the Closing Price) the amount by which the Exchange Price paid on the Closing
Date is less than the Exchange Price, as adjusted.
(v) The Closing Balance Sheet shall be prepared in accordance with
generally accepted accounting principles.
Section 3. The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place, following the satisfaction of
all of the conditions
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set forth in Sections 8 and 9 hereof, or the waiver thereof, on September 30,
1997 (the "Closing Date") and at a place to be specified by the parties.
Section 4. Deliveries at Closing. At the Closing, the Shareholders shall
deliver to SEI the various certificates, instruments and documents referenced in
Section 9 below, including without limitation stock certificates representing
the Shares, together with accompanying stock transfer powers or instruments of
assignment, duly endorsed in blank. At the Closing, SEI shall deliver to the
Shareholders various certificates, instruments and documents referenced in
Section 8 below.
Section 5. Representations and Warranties of the Shareholders. Each of the
Shareholders, jointly and severally, represents and warrants to SEI as follows
as of the date hereof and also as of the Closing Date:
(a) Corporate Organization; Governing Documents of the Company.
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
The Company has all requisite corporate power and authority to own or lease
all of its properties or assets and to carry on its business as it is now
being conducted. The Company has in effect and holds all licenses, permits
and other required authorizations from governmental authorities necessary
for it to own or lease its properties and to conduct its business as it is
now being conducted. The Company is duly qualified to do business and is in
good standing in the jurisdictions set forth in Schedule 5(a), which
includes every jurisdiction in which the failure to be so qualified or in
good standing would have a material adverse effect on (A) the Company's
ability to perform its obligations under the Transaction Documents (as
hereinafter defined) to be executed and delivered by the Company or (B) the
assets, results of operations or prospects of the Company. As used in this
Agreement, "Transaction Documents" shall mean all documents to be executed
and delivered by the Company or by a Shareholder in connection with the
Transfer.
(ii) True and complete copies of the Company's Articles
of Incorporation and Bylaws, as amended to the date hereof, the books of
account, minute books, stock record books and other records of the Company
have been delivered to SEI. All of such records are complete and correct
and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls. The
minute books of the Company contain accurate and complete records of all
meetings of, and corporate action taken by, the Shareholders, the Board of
Directors and committees of the Board of Directors of the Company, and no
meeting of any such Shareholders, Board of Directors or committee has been
held for which minutes have not been prepared and are not contained in such
minute books.
(b) Capitalization.
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(i) The authorized capital stock of the Company consists
of 50,000 shares of common stock, par value $1.00 per share (the "Company
Common Stock"), 50,000 shares of which are issued and outstanding as of the
date hereof and constitute the Shares. There are no other classes of
securities of the Company outstanding. All of the shares of Company Common
Stock have been duly authorized, validly issued and are fully paid,
nonassessable and free of preemptive rights. Other than this Agreement,
there are no contracts, commitments, understandings or arrangements
relating to the issuance, sale, transfer or registration of the Company
Common Stock or any other securities of the Company. Other than this
Agreement, there are no options, warrants, preemptive rights, calls,
subscriptions, convertible securities or other rights, agreements or
commitments that obligate the Company or a Shareholder to issue, transfer
or sell any shares of Company Common Stock or any other securities of the
Company.
(ii) All offers and sales of Company Common Stock, and any
other securities issued by the Company, prior to the date hereof were at
all relevant times exempt from the registration requirements of the
Securities Act of 1933, as amended (the "1933 Act"), and were duly
registered or the subject of an available exemption from the registration
requirements of the applicable state securities or Blue Sky laws.
(iii) Each Shareholder is the legal and beneficial owner
of and has good and marketable title to the shares of Company Common Stock
set forth opposite its name on Schedule 5(b), free and clear of any and all
liens, claims, pledges, encumbrances, charges, options and contractual
restrictions whatsoever. Each Shareholder has full, absolute and
unrestricted right, power, capacity and authority to sell, transfer, assign
and deliver its Shares to SEI and the delivery of such Shares to SEI will
convey to SEI valid, marketable and indefeasible title to such Shares, free
and clear of any and all liens, claims, pledges, encumbrances, charges,
options or contractual restrictions whatsoever.
(c) Authorization and Validity. Each Shareholder is a natural person
and has the full authority and legal capacity to execute and deliver this
Agreement and all other Transaction Documents to be executed and delivered by
such Shareholder and to consummate the transactions contemplated hereby or
thereby. No corporate proceedings on the part of the Company are necessary to
consummate the transactions contemplated hereby. This Agreement, when executed,
will constitute the legal, valid and binding obligation of each Shareholder,
enforceable against each Shareholder in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
(d) No Defaults; Absence of Conflicts. The Company prior to the
Closing Date is not in default under, nor has any event occurred which, with or
without
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notice or the lapse of time or action by a third party, could result in
a default under, any outstanding indenture, mortgage, contract, lease, insurance
policy or agreement to which the Company is a party or by which its assets,
business or operation may be bound or affected. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement will not violate any provision of, or result in
the breach of, or constitute a default under, or conflict with, (A) any terms or
provisions of the Articles of Incorporation or Bylaws of the Company, any
resolution of the shareholders or Board of Directors of the Company or any
agreements between or among the Shareholders and the Company or between the
Company and any current or former owner of a share of Company Common Stock, (B)
any law the violation of which would result in a material liability to the
Company, or (C) any order, writ, injunction or decree of any court, governmental
agency or arbitration tribunal.
(e) Subsidiaries and Investments. Except as set forth on Schedule
5(e), the Company does not currently own, directly or indirectly, beneficially
or equitably, any capital stock or other equity, ownership or proprietary
interest in any corporation, partnership, limited liability company,
association, trust, joint venture or other entity.
(f) Financial Statements. The Company has delivered to SEI the
financial statements of the Company for the fiscal years ended September 30,
1992, 1993, 1994, 1995 and 1996, and the report thereon of ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇,
P.A., independent accountants (the "Financial Statements"). The Financial
Statements have been prepared from the books and records of the Company which
accurately and fairly reflect in all material respects the transactions of the
Company. To the best of the Shareholders' knowledge after due investigation, the
Financial Statements are true, correct and complete, have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and fairly and accurately present the financial and business condition of the
Company as of the dates thereof and the results of the operations of the Company
for the periods covered thereby. To the best of the Shareholder's knowledge
after due investigation, the Financial Statements accurately reflect or
adequately provide for all claims against, and all debts and liabilities of, the
Company, fixed or contingent, existing at the dates thereof. To the best of
Shareholders' knowledge, the Company has adequately funded all accrued employee
benefit costs and such funding is reflected on the Financial Statements.
(g) Accounts Receivable and Payable. The accounts receivable reflected
on the Financial Statements arose in the ordinary course of business and, except
as reserved against on the Financial Statements, are collectible in the ordinary
course of business and consistent with past practices, free of any claims,
rights or defenses of any account debtor. No accounts payable of the Company
will be over sixty (60) days old at the Closing Date except in the ordinary
course of business.
(h) Absence of Certain Changes. Except as disclosed on Schedule 5(h),
the Company has not since March 31, 1997:
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(i) changed the Company's authorized or issued capital stock;
granted any stock option or right to purchase shares of capital stock of
the Company; issued any security convertible into such capital stock;
granted any registration rights; purchased, redeemed, retired, or otherwise
acquired any shares of any such capital stock; or declared or paid any
dividend or other distribution or payment in respect of shares of capital
stock;
(ii) amended the Articles of Incorporation, Bylaws or other
organizational documents of the Company;
(iii) incurred any indebtedness or other liabilities (whether
accrued, absolute, contingent or otherwise), guaranteed any indebtedness or
sold any assets, except in the ordinary course of business consistent with
past practice;
(iv) suffered any damage, destruction or loss to any of the
tangible assets of the Company valued over $25,000, whether or not covered
by insurance;
(v) other than in the ordinary course of business,
increased the regular rate of compensation payable by it to any employee or
increased such compensation by bonus, percentage, compensation service
award or similar arrangement theretofore in effect for the benefit of any
of its employees, and no such increase is required;
(vi) terminated any employee;
(vii) established or agreed to establish any pension,
retirement or welfare plan for the benefit of its employees not theretofore
in effect;
(viii) experienced any labor organizational efforts, strikes
or formal complaints or entered into any collective bargaining agreements
with any union;
(ix) suffered any change in its financial condition, assets,
liabilities, business or prospects or suffered any other event or condition
of any character which individually or in the aggregate has or might
reasonably be expected to have a material adverse effect on its business or
prospects;
(x) entered into any commitments or transactions or made any
capital expenditures involving aggregate amount or value in excess of
$50,000 or made any single capital expenditure which exceeded $25,000;
(xi) disposed of any of its assets, written down the value of
any assets, written off as uncollectible any accounts receivable or
revalued any of its assets, except in the ordinary course of business
consistent with past practice;
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(xii) subjected any of its assets, tangible or intangible, to
any lien, encumbrance or restriction whatsoever, except for liens for
current property taxes not yet due and payable;
(xiii) paid, discharged or satisfied any claims, liabilities
or obligations (absolute, accrued, contingent or otherwise), except in the
ordinary course of business consistent with past practice;
(xiv) entered into, terminated or received notice of
termination of (A) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (B) any
contract or transaction involving a total remaining commitment by or to the
Company of at least $25,000.00;
(xv) canceled or waived any claims or rights with a value to
the Company in excess of $25,000;
(xvi) made any change in any method of accounting or
accounting practice;
(xvii) canceled, or failed to continue, insurance coverage;
or
(xviii) agreed, whether in writing or otherwise, to take any
action described in this Section 5(h).
(i) Ownership of Properties. The Company owns the assets (the
"Assets") reflected on the September 30, 1996 balance sheet which constitute all
of the operating assets, excluding real property, of the Company necessary or
appropriate for the continued operation of the business of the Company. The
Company has sufficient title in and to the Assets necessary or advisable to
operate and conduct the business of the Company in the same fashion as the
Company is currently conducting such business. Except as set forth on Schedule
5(i), the Company has good and marketable title to all of the Assets owned by it
including furniture, fixtures and equipment, fixed assets and inventory, and all
contract rights and intangible assets, and good and valid leasehold estates in
all of the Assets leased by it, free and clear of mortgages, security interests,
liens, defects, charges, encumbrances, restrictions and rights of third parties
(excluding accounts payable in the ordinary course of business). All equipment
and other personal property constituting a portion of the Assets are in good
operating condition and repair as of the date hereof and as of the Closing Date,
ordinary wear and tear excepted. The inventory of the Company consists of
supplies and purchased parts, all of which are merchantable and fit for the
purpose for which it was procured, and none of which is obsolete, damaged or
defective, subject only to the reserve for inventory writedown as set forth on
the balance sheet of the Company dated March 31, 1997. Following the Transfer,
the Company will have all of its rights under the leases for the premises now
leased by the Company free and clear of any claims, liens and encumbrances,
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except to the extent expressly set forth in said leases, and the Transfer will
not result in any increase in rents or charges under such leases.
(j) Taxes. The Company has timely filed all federal, state and local
tax returns or information returns required to be filed by it and has delivered
to SEI true and correct copies of such returns for the fiscal years 1992 through
1996. SEI acknowledges that the Company may amend the 1992 through 1996 tax
returns after the Closing Date. Any amended tax returns shall not constitute a
violation of this representation. All of such returns have been prepared
accurately and filed in accordance with applicable laws and regulations. The
Company has paid all taxes and assessments (including, without limitation,
income, excise, unemployment, social security, occupation, franchise, property,
sales and use taxes, import duties or charges, and all penalties and interest in
respect thereof) due and payable by it and the reserves for taxes contained on
the most recent Financial Statements (other than any reserve for deferred taxes
established to reflect timing differences between book and tax income) are
adequate to cover all tax liabilities as of the date of this Agreement. The
Company and any predecessors in interest have withheld or collected from each
payment made to each of their employees the amount of all taxes required to be
withheld or collected therefrom, and the Company and any predecessors in
interest have paid the same to the proper tax depositories or collecting
authorities. Since 1992, the Company has not (i) been audited by any taxing
authority, (ii) received notice that any taxing authority contemplates such an
audit, (iii) signed any extension agreement with any taxing authority, (iv)
received notice of any deficiencies, adjustments, assessments or other charges
with respect to taxes paid or payable or (v) made any payment, or provided any
benefit, to any officer, employee, former officer or former employee that is not
allowable as a deduction under the Code or the regulations thereunder.
(k) Insurance. True and correct copies of all insurance policies
maintained by the Company, and all endorsements thereto, have been delivered to
SEI. All such policies are in full force and effect, with no premium arrearages,
and will continue in full force and effect following the sale of the Shares.
Except as set forth on Schedule 5(k), there are no pending claims against such
insurance by the Company as to which insurers are defending under reservation of
rights or have denied liability, and except as set forth on Schedule 5(k), there
exists no claim under such insurance that has not been properly filed by the
Company
(l) Environmental Conditions.
(i) The Company is currently in compliance with all Environmental
Laws (as defined below), which compliance includes, without limitation, the
possession by the Company of all permits and other governmental
authorization required under applicable Environmental Laws to operate the
business as currently operated, and is in compliance with the terms and
conditions thereof.
(ii) Neither the Company nor any Shareholder has stored any
Hazardous Substances (as defined below) on any of the real property owned
or
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leased by the Company (the "Real Property"), except in compliance with
applicable Environmental Laws.
(iii) Neither the Company nor any Shareholder has disposed of or
released any Hazardous Substances on any of the Real Property.
(iv) The Company has not arranged for disposal or utilized any
transporters or disposal facilities for the transport or disposal of
Hazardous Substances except as indicated on Schedule 5(l)(iv).
(v) The Company has not received any communication (written or
oral), whether from a governmental authority, citizen's group, employee or
otherwise, that alleges that the Company is not in full compliance with
Environmental Laws, and there are no circumstances that may prevent,
interfere with, or make more expensive such full compliance in the future.
There is no Environmental Claim (as defined below) pending or threatened
against the Company.
(vi) There have been no actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
generation, handling, transportation, treatment, storage, release,
emission, discharge, presence or disposal of any Hazardous Substances that
could form the basis of any Environmental Claim against the Company, and
neither the Company nor any Shareholder knows of any such actions,
activities, circumstances, conditions, events or incidents.
(vii) The Real Property and, to the best knowledge of the Company
and the Shareholders, adjoining properties, have never been utilized for
any industrial or commercial operation involving any Hazardous Substance.
(viii) Without in any way limiting the generality of the
foregoing, (A) all underground storage tanks, and the capacity, uses, date
of installation, and contents of such tanks, located on the Real Property,
are identified on Schedule 5(l)(viii); (B) there are no, nor have there
ever been, collection dumps, pits, and disposal facilities or surface
impoundments located on the Real Property, except as identified on Schedule
5(l)(viii); (C) all underground storage tanks are in full compliance with
the Environmental Laws; (D) there is no asbestos contained in or forming
part of the Real Property; and (E) no polychlorinated biphenyls ("PCBs")
have been used or stored on the Real Property.
The following terms shall have the following meanings:
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a)
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the presence, or release into the environment, of Hazardous Substances at
any location which is or has been owned, leased, operated or utilized by
the Company or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
"Environmental Laws" means the federal, state, regional, county
or local environmental, health or safety laws, regulations, ordinances,
rules and policies and common law in effect on the date hereof and the
Closing Date relating to the use, refinement, handling, treatment, removal,
storage, production, manufacture, transportation or disposal, emissions,
discharges, releases or threatened releases of Hazardous Substances, or
otherwise relating to protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata), as the same may be amended or modified
to the date hereof and the Closing Date.
"Hazardous Substances" means any toxic or hazardous waste,
pollutants or substances, including, without limitations, asbestos
containing materials ("ACMs"), polychlorinated biphenyls ("PCBs"),
petroleum products, byproducts, or other hydrocarbon substances, substances
defined or listed as a "hazardous waste", "hazardous substance", "toxic
substance", "toxic pollutant", or similarly identified substance or
mixture, in or pursuant to any Environmental Law and medical or infectious
waste.
(m) Contracts and Commitments. Except as described on Schedule 5(m)
hereto, the Company is not a party or subject to any agreement, commitment,
contract or obligation, whether written or oral, express or implied:
(i) that limits the right of the Company to engage in or to
compete with any person or entity in any business;
(ii) for the purchase or sale of supplies, services or other
items in excess of $25,000 in any one instance;
(iii) for the purchase or sale of any equipment or machinery in
excess of $25,000;
(iv) for the performance of services for others in excess of
$25,000 in any one instance;
(v) for the performance of services for others in excess of
$25,000 for a period of more than ninety (90) days;
(vi) for the lease of any property, tangible or intangible;
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(vii) with any shareholder, partner, officer or director of the
Company or any affiliate of such persons;
(viii) not in the ordinary course of business;
(ix) for any power of attorney, whether limited or general, granted
by or to the Company; or
(x) otherwise material to the assets, business or operations of the
Company.
The Company has delivered to SEI true and complete copies of all of the
contracts, leases and agreements described on Schedule 5(m) (the "Company
Agreements"). Except as noted in Schedule 5(m), the Company Agreements are valid
and in full force and effect; each is a legal, valid and binding contract; there
has been no threatened cancellation thereof and there are no outstanding
disputes thereunder; each is with unrelated third parties and was entered into
on an arms-length basis in the ordinary course of business; all will continue to
be binding in accordance with their terms after consummation of the transactions
contemplated herein; there is no material default (or an event which, with the
giving of notice or lapse of time or both would be a material default) by the
Company; and to the knowledge of the Company and the Shareholders, there is no
pending or threatened bankruptcy, insolvency or similar proceeding with respect
to any other party to the Company Agreements. To the best of Shareholder's
knowledge after due investigation, there are no contracts, leases, agreements or
other instruments to which the Company is a party or is bound (other than
insurance policies) which could either singularly or in the aggregate have an
adverse effect on the value of the Company.
(n) No Undisclosed Liabilities. With the exception of the liabilities set
forth on Schedule 5(n) or as reflected on the Financial Statements, the Company
does not have any material liabilities or obligations of any nature, whether
absolute, accrued, asserted or unasserted, contingent or otherwise or whether
due or to become due, relating to or arising out of any act, omission,
transaction, circumstance, sale of goods or services or other condition which
occurred or existed on or before the date hereof, and neither the Company nor
any Shareholder knows or has reason to know of any basis for the assertion
against the Company of any such liability or obligation of any nature not
described in Schedule 5(n).
(o) Employees and Labor Matters.
(i) Schedule 5(o)(i) contains a complete and accurate list of the
following information for each employee or director of the Company: name;
job title; current compensation paid or payable and any change in
compensation since March 31, 1997; vacation accrued; and service credited
for purposes of vesting and eligibility to participate under any pension,
retirement, profit-sharing, thrift-savings, deferred compensation, stock
bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
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insurance medical, welfare, or vacation plan, or any other employee benefit
plan or any director plan.
(ii) Except as disclosed on Schedule 5(o)(ii), no employee or
director of the Company is a party to, or is otherwise bound by, any
agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or director and any
other person or entity that in any way adversely affects or will affect (A)
the performance of his duties as an employee or director of the Company, or
(B) the ability of the Company to conduct its business. To the knowledge of
the Company and each Shareholder, no director, officer, or other key
employee of the Company intends to terminate his employment with the
Company.
(iii) The Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, occupational safety and health
including laws concerning unfair labor practices within the meaning of
Section 8 of the National Labor Relations Act, and the
employment of non-residents under the Immigration Reform and Control Act
of 1986.
(iv) Except as disclosed on Schedule 5(o)(iv),
(A) there are no charges, governmental audits, investigations,
administrative proceedings or complaints concerning the Company's
employment practices pending or, to the knowledge of the Company and
each Shareholder, threatened before any federal, state or local agency
or court, and, to the knowledge of the Company and each Shareholder,
no basis for any such matter exists;
(B) the Company is not a party to any union or collective
bargaining agreement, and, to the knowledge of the Company and each
Shareholder, no union attempts to organize the employees of the
Company have been made, nor are any such attempts now threatened; and
(C) the Company has not experienced any organized slowdown,
work interruption, strike or work stoppage by its employees during the
last three (3) years.
(p) Employee Benefit Plans.
(i) Set forth on Schedule 5(p)(i) is a list of all "employee benefit
plans" as defined by Section 3(3) of the Employment Retirement Income
Security Act of 1974, as amended, and the rules and regulations promulgated
thereunder (collectively, "ERISA"), all specified fringe benefit plans as
defined in Section 6039D of the Internal Revenue code of 1986, as amended
(the "Code"), and all
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other bonus, incentive compensation, deferred compensation, profit sharing,
stock option, stock appreciation right, stock bonus, stock purchase,
employee stock ownership, savings, severance, supplemental unemployment,
layoff, salary continuation, retirement, pension, health, life insurance,
disability, group insurance, vacation, holiday, sick leave, fringe benefit
or welfare plan, or any other similar plan, agreement, policy or
understanding (whether written or oral, qualified or nonqualified), and any
trust, escrow or other agreement related thereto, which (i) is maintained
or contributed to by the Company, or (ii) with respect to which the Company
has any officer, employee, service provider, former officer or former
employee, or the dependents of any thereof, regardless of whether funded
that maintain or contribute to such plans (the "Employee Plans"). The
Company has delivered or made available to SEI true, accurate and complete
copies of the documents comprising each Employee Plan and any related trust
agreements, annuity contracts or any other funding instruments ("Funding
Arrangements").
(ii) There have been no prohibited transactions, breaches of
fiduciary duty or other breaches or violations of any law applicable to the
Employee Plans and related Funding Arrangements that could subject the
Company or SEI to any liability. Except as disclosed on Schedule 5(p)(ii),
each Employee Plan intended to be qualified under Section 401(a) of the
Code has a current favorable determination letter and no event has occurred
which, to the knowledge of the Company, could cause any Employee Plan to
become disqualified for purposes of section 401(a) of the Code. Each
Employee Plan has been operated in compliance with applicable law,
including Section 401(a) of the Code as applicable, and in accordance with
its terms.
(iii) All required reports and descriptions of the Employee Plans
(including Internal Revenue Service Form 5500 annual reports, summary
annual reports and summary plan descriptions) have been timely filed with
the Internal Revenue Service, the United States labor Department (the
"DOL"), and the Pension Benefit Guaranty Corporation (the "PBGC") and, as
appropriate, provided to participants in the Employee Plans.
(iv) There are no pending claims, lawsuits or actions relating to
any Employee Plan (other than ordinary course claims for benefits) and,
to the best knowledge of the Company, none are threatened.
(v) No written or oral representations have been made to any
employee or former employee of the Company promising or guaranteeing any
employer payment or funding, and no Employee Plans provide, for the
continuation of medical, dental, life or disability insurance coverage for
any former employee of the Company for any period of time beyond the end
of the current plan year (except to the extent of coverage required
under Title I, Part 6, of ERISA). The consummation of the transactions
contemplated by this Agreement will not accelerate the time of vesting,
of payment, or increase the amount, of compensation to any employee,
officer, former employee or former officer of the Company. No Employee
Plans or other contracts or
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arrangements provide for payments that would be triggered by the
consummation of the transactions contemplated by this Agreement that
would subject any person to excise tax under Section 4999 of the Code
(i.e., "golden parachute" taxes). All compensation amounts that have been
paid or are payable are or will become deductible by SEI pursuant to
Section 162 of the Code.
(vi) The Company and its affiliates have complied with the
continuation coverage provisions of Title I, Part 6, of ERISA ("COBRA")
with respect to all current employees and former employees. Schedule
5(p)(vi) lists all of the former employees of the Company and their
beneficiaries who have elected or are eligible to elect COBRA continuation
of health insurance coverage under the Company's group health plans and who
are so covered as of the date hereof, and as of the Closing Date.
(vii) Neither the Company nor any other employer who has participated
or is participating in any Employer Plan (a "Sponsor") has incurred any
liability to the DOL, the PBGC or the Internal Revenue Service in
connection with any of the Employee Plans, and no condition exists that
presents a risk to the Company or any Sponsor of incurring any liability to
the DOL, the PBGC or Internal Revenue Service.
(viii) The Company has not been liable at any time for contributions
to a plan that is subject to Title IV of ERISA.
(ix) Full payment has been made of all amounts which are required
under the terms of each Employee Plan or Funding Arrangement to have been
paid as of the due date for such payments that have occurred on or before
the date of this Agreement, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code) has been
incurred with respect to such Employee Plan, whether or not waived.
(x) Neither the Company nor any other Sponsor has any liability, nor
will the transactions contemplated under this Agreement result in any
liability (i) for the termination of or withdrawal from any plan under
Sections 4062, 4063, or 4064 or ERISA, (ii) for any lien imposed under
Section 302(f) or ERISA or Section 412(n) of the Code, (iii) for any
interest payments required under Section 302(e) of ERISA or Section 412(m)
of the Code, (iv) for any excise tax imposed by Section 4971 of the Code,
(v) for any minimum funding contributions under Section 302(c)(11) of ERISA
or Section 412(c)(11) of the Code, or (vi) for withdrawal from any
multi-employer plan under Section 4201 of ERISA.
(xi) Any Employee Plan that provides for severance payments to
employees after termination of employment is in writing, has been operated
in compliance with ERISA, and expressly provides that no severance benefits
are payable as the result of a termination of employment to an employee who
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is hired by a successor entity, or who otherwise continues employment with
a successor, in connection with a merger or acquisition transaction.
(q) Trademarks, Trade Names, Etc. The Company owns or has the right
to use each trademark, trade name, service ▇▇▇▇, patent, copyright or other
intellectual property (the "Intellectual Property") necessary or desirable for
the operation of the business of the Company as presently conducted, and
following the Transfer, the Company will own or be able to use the Intellectual
Property on the identical terms and conditions. The Company is not currently in
receipt of any notice of any violation of, and has no reason to believe that the
Company's operations are violating, the rights of others with respect to the
Intellectual Property, and the Company has taken reasonable measures to protect
its rights with respect to Intellectual Property that is proprietary to the
Company.
(r) Litigation. Except as set forth in Schedule 5(r), there is no
litigation, arbitration, governmental claim, investigation or proceeding pending
or threatened against the Company or a Shareholder, at law or in equity, before
any court, arbitration tribunal or governmental agency. No such proceeding set
forth in Schedule 5(r) concerns the ownership or other rights with respect to
the Company Common Stock. Neither the Company nor any Shareholder knows of any
facts on which material claims may be hereafter made against the Company. All
claims and litigation against the Company are fully covered by insurance, except
as otherwise indicated on Schedule 5(r).
(s) Compliance with Laws, Regulations and Court Orders. There is not
outstanding or threatened any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal against or affecting the Company or
the Company Common Stock. The Company is in compliance with all applicable
federal, state and local laws, regulations and administrative orders, including
without limitation those concerning the sale of insurance in connection with the
warranties provided pursuant to the Company's service and maintenance
agreements, and has received no notices of alleged violations thereof except as
disclosed in Schedule 5(s) hereof. Neither the Company, nor, to the knowledge of
the Company or the Shareholders, any licensed technician or other individual
affiliated with the Company has, during the past three (3) years, been the
subject of any inspection, investigation, survey, audit, monitoring or other
form of review by any governmental regulatory entity, trade association,
professional review organization, accrediting organization or certifying agency
for the purpose of any alleged improper activity on the part of such individual,
nor has the Company received any notice of deficiency in connection with its
operation. No governmental authorities are currently conducting proceedings
against the Company and no such investigation or proceeding is pending or being
threatened.
(t) Certain Payments. Neither the Company nor any Shareholder,
director, officer, agent, or employee of the Company, or any other person
associated with or acting for or on behalf of the Company, has directly or
indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any person, private or public, regardless
of form, whether in money, property, or services (A) to obtain
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favorable treatment in securing business, (B) to pay for favorable treatment for
business secured, (C) to obtain special concessions or for special concessions
already obtained, for or in respect of the Company or any affiliate of the
Company, or (D) in violation of any law, or (ii) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
(u) Consents and Approvals. Except as set forth on Schedule 5(u), no
consents, approvals, authorizations or orders of third parties, including
governmental authorities, are necessary for the authorization, execution and
performance by each Shareholder of this Agreement and the Transaction Documents.
(v) No Broker's Fees. The Shareholders and the Company have no
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
(w) Disclosure.
(i) No representation or warranty made herein by any Shareholder,
nor in any statement, certificate or instrument to be furnished to SEI by
the Company or any Shareholder pursuant to any Transaction Document,
contains or will contain any untrue statement of material fact or omits or
will omit to state a material fact necessary to make these statements
contained herein and therein not misleading.
(ii) There is no fact known to the Company or any Shareholder
that has specific application to the Company (other than general economic
or industry conditions) and that materially adversely affects the Company
Common Stock, the Assets or the business, prospects, financial condition,
or results of operations of the Company that has not been set forth in this
Agreement.
(x) Reliance on Representations. Each Shareholder understands and
intends that SEI and its management will rely upon the representations of the
Company and each Shareholder made in this Agreement, and they are entitled to
rely upon each and all of the same without further inquiry.
(y) No Conflict of Interest. None of the Shareholders or any of their
respective affiliates owns, directly or indirectly (except in the capacity as a
shareholder), in whole or in part, any personal property, tangible or
intangible, which the Company is presently using or the use of which is
necessary for the business of the Company as presently conducted. The Company is
not indebted to any of its officers, directors or shareholders or to their
respective spouses, children or other family members, and none of such officers,
directors or shareholders has any claim of any nature against the Company,
except for accrued compensation. No officer, director or shareholder of the
Company, or any person in the family of or who is a partner of any officer,
director or shareholder of the Company, (i) is indebted to the Company, or (ii)
has any direct or indirect ownership interest in (A) any
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entity that sells goods or services to the Company, (B) any other entity with
which the Company is affiliated or with which it has a business relationship or
(C) in any entity that competes with the Company.
(z) Pooling of Interests. The representations, warranties and
covenants of the Shareholders set forth in the draft letter (the "Shareholder
Pooling Letter") of even date herewith from the Shareholders to Ernst & Young
LLP ("E&Y") and to ▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇, P.A., (the "▇▇▇▇▇▇▇ Accountants") are
true and correct in all respects and will be true and correct in all respects as
of the Closing Date (except as such matters may be subject to the control of SEI
or its affiliates). The Shareholders shall execute the Shareholder Pooling
Letter at Closing.
(aa) Ownership of SEI Common Stock. Neither the Company nor any
Shareholder owns any shares of SEI Common Stock or other securities convertible
into SEI Common Stock.
(bb) Investment Intent. Each Shareholder understands that the SEI
Common Stock will be transferred without registration under the Securities Act
of 1933, as amended (the "Act"), and applicable state securities laws, in
reliance upon applicable exemptions from the registration provisions of the Act
and state securities laws, and that such reliance is based in part on
representations set forth below.
(i) Each Shareholder recognizes the speculative nature of an
investment in the Company and that it involves a high degree of loss;
(ii) Each Shareholder can bear the economic risk of the
investment in the SEI Common Stock;
(iii) Each Shareholder has such knowledge and experience in
financial or business matters that he or she is capable of evaluating the
merits and risks of the prospective investment, or such Shareholder is
relying on such Shareholder's own tax advisor and/or a purchaser
representative ("Purchaser Representative") in making the investment
decision to purchase the SEI Common Stock;
(iv) Each Shareholder has received and read and is familiar
with the Confidential Private Placement Memorandum, dated September 26,
1997, including the documents and exhibits annexed thereto and any
amendments thereof (the "Memorandum"), and confirms that all documents,
records and books pertaining to such Shareholder's proposed investment in
the Company has been made available to such Shareholder and (if applicable)
my Purchaser Representative;
(v) Each Shareholder and (if applicable) his or her Purchaser
Representative, have had, if requested, an opportunity to ask questions of
and receive satisfactory answers from a person or persons acting on behalf
of the
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Company, concerning the terms and conditions of this investment, and
all such questions have been answered to such Shareholder's full
satisfaction;
(vi) Each Shareholder is acquiring the SEI Common Stock for
such Shareholder's own account for investment and not with a view to, or
for resale in connection with, any distribution thereof within the meaning
of the Act and applicable state securities laws;
(vii) Each Shareholder has received no representations or
warranties from SEI or its affiliates, agents or representatives other than
those contained herein or in the Memorandum and, in making his or her
investment decision, such Shareholder is relying solely on the information
contained herein or in the Memorandum and such Shareholder's own personal
knowledge, and investigations made by such Shareholder or (if applicable)
his or her Purchaser Representative; and
(viii) Each Shareholder understands that no securities
commissioner of any state has made any finding or determination relating to
the fairness for public investment in the SEI Common Stock and that no
securities commissioner of any state has or will recommend or endorse an
investment in the SEI Common Stock.
(ix) The SEI Common Stock was offered to each Shareholder by
SEI through direct communication and not through any advertisement of any
kind.
Section 6. Representations and Warranties of SEI. SEI hereby represents and
warrants to each Shareholder as follows as of the date hereof and as of the
Closing Date:
(a) Corporate Organization. SEI is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation, has all requisite corporate power and authority to execute and
deliver this Agreement and holds all licenses, permits and other required
authorizations from governmental authorities necessary to conduct its business
as it is now being conducted.
(b) Capitalization. As of the date hereof, SEI's authorized capital
stock consists of (i) 30,000,000 shares of SEI Common Stock, par value $.01 per
share and (ii) 10,000,000 shares of Preferred Stock, par value $.01 per share,
none of which are issued and outstanding. All issued and outstanding shares of
SEI Common Stock have been duly and validly authorized, issued, fully paid and
nonassessable. No shareholder of SEI has any preemptive rights with respect to
the issuance of shares of SEI Common Stock.
(c) Authorization and Validity. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized and approved by all necessary
corporate action. This Agreement, when executed, will constitute the legal,
valid and binding obligation of SEI, enforceable against it in accordance with
its terms, except as enforceability may be limited by
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applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Absence of Conflicting Agreements or Required Consents. The
execution, delivery and performance by SEI of the Transaction Documents to be
executed and delivered by it (i) do not require the consent of or notice to any
governmental or regulatory authority or any other third party; (ii) will not
conflict with any provision of SEI's Restated Certificate of Incorporation or
Bylaws; (iii) will not conflict with or result in a violation of any law,
ordinance regulation, ruling, judgement, order or injunction of any court or
governmental instrumentality to which SEI is a party or by which SEI or any of
its properties are bound; (iv) will not conflict with, constitute grounds for
termination of, result in a breach of, constitute a default under, require any
notice under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit to which
SEI is a party or by which any of its properties are bound; and (v) will not
create any lien, encumbrance or restriction upon any of the assets or properties
of SEI.
(e) Litigation and Claims. There are no claims, lawsuits, actions,
arbitrations, administrative or other proceedings, governmental investigations
or inquiries pending or threatened against SEI affecting the performance by SEI
of the Transaction Documents and there is no basis for any such action or any
state of facts or occurrence of any event which might give rise to the
foregoing.
(f) No Broker's Fees. SEI does not have any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
(g) Statements True and Correct. No representation or warranty made
herein by SEI, nor in any statement, certificate or instrument to be furnished
to the Shareholders by SEI pursuant to any Transaction Document, contains or
will contain any untrue statement of material fact or omits or will omit to
state a material fact necessary to make these statements contained herein and
therein not misleading.
(h) Pooling of Interests. The representations, warranties and
covenants of SEI set forth in the draft letter (the "SEI Pooling Letter") of
even date herewith from SEI to E&Y and to the ▇▇▇▇▇▇▇ Accountants are true and
correct in all material respects and will be true and correct in all material
respects as of the Closing Date (except as such matters may be subject to the
control of the Company, any Shareholder or its affiliates). SEI shall execute
the SEI Pooling Letter at Closing.
(i) Ownership of Company Common Stock. SEI does not own any shares of
Company Common Stock or other securities convertible into Company Common Stock.
Section 7. Additional Covenants and Agreements.
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(a) Best Efforts. Each Shareholder will use its best efforts to take
all action and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement. Each Shareholder will use its best
efforts to secure all consents and approvals required to carry out the
transactions contemplated by this Agreement and to satisfy all other conditions
to the obligations of the parties hereunder.
(b) Licenses; Permits. The Shareholders will cause the Company to
cooperate in all reasonable respects with SEI in its applications to obtain such
licenses and permits, if any, as may be necessary in order for SEI to operate
the business of the Company as it is currently operated.
(c) Confidentiality and Public Announcements. Each Shareholder shall
cause the Company to, and each Shareholder shall, keep confidential all
information concerning this Agreement or provided to it by SEI. The Shareholders
shall cause the Company to, and each Shareholder shall, refrain from making, any
public announcement with respect to this Agreement without the prior written
consent of SEI.
(d) Subchapter S Matters. If the Company is an "S" corporation, the
Shareholders shall prepare, at their expense, the short period tax returns of
the Company ending on the Closing Date. Such returns shall be provided for SEI's
prior review and approval, which approval shall not be unreasonably withheld or
delayed. The Shareholders shall file such returns on behalf of the Company as an
"S" corporation for that short period. SEI shall make available any information
in its or the Company's possession which is reasonably required by the
Shareholders to complete such returns.
(e) Restrictions on Transfer. Each Shareholder acknowledges and agrees
that the SEI Common Stock to be issued in the Transfer has not been registered
under the Act. The SEI Common Stock to be issued in the Transfer may not be
offered for sale, sold, transferred, pledged or otherwise disposed of without
registration under the federal and state securities laws or an exemption
therefrom. SEI will file with the Securities and Exchange Commission (the
"Commission"), on or before November 15, 1997, a Registration Statement on Form
S-3 (the "Registration Statement") registering the resale by the Shareholders of
the shares of SEI Common Stock issued in the transfer. SEI will promptly respond
to any review comments by the Commission and will diligently pursue the
registration of the SEI Common Stock. The Registration Statement shall be kept
current by SEI until such time as each shareholder has sold all the SEI Common
Stock or until resales can be made under Rule 144. Certificates representing the
SEI Common Stock will bear legends with respect to restrictions on subsequent
transfers of the securities. Because the shares of SEI Common Stock will be
subject to restrictions on transfers, such shares will not be transferable
except in accordance with the Act. In addition, SEI will publish, within 30 days
of receipt of the Company's financial results for the period commencing October
1, 1997 and ending October 30, 1997, combined results of the Company and SEI
covering at least 30 days from the Closing Date.
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(f) Warranty Claims. SEI and the Shareholders hereby acknowledge and
agree that for purposes of indemnification pursuant to Section 11 hereof the
Shareholders shall not be liable for warranty claims of less than or equal to
$75,000. The Shareholders shall be liable for all warranty claims above $75,000.
(g) Product Liability Insurance. SEI hereby acknowledges and agrees
that subsequent to Closing and for the period of time the Shareholders are
subject to rights of indemnification pursuant to Section 13(j) SEI shall cause
the Company to continue its existing insurance coverage for product liability
claims or elect to be covered under SEI's policies.
(h) Termination of Leases. As of the Closing Date, the Shareholders
shall cause the Company to terminate the leases of the buildings and land in and
upon which the Company operates as of the date hereof and neither the Company
nor SEI shall have any obligation or liability, directly or indirectly, arising
in connection with or on account of such termination.
(i) Title Commitments. The Shareholders shall cause the Company to
obtain as soon as reasonably possible, at the expense of the Company, a title
commitment from Chicago Title Company (the "Title Company") for an Owner's Title
Policy/ALTA Form 1987 (Revised 10-17-92) title insurance policy for the real
property (the "Owned Property") owned by the Company (the "Title Commitment"),
along with copies of all recorded documents affecting or relating to the Owned
Property.
Section 8. Conditions to Obligation of the Shareholders to Effect the
Transfer. The obligation of the Shareholders to effect the Transfer shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of SEI set forth herein in Section 6 above shall be true and
correct in all material respects as of the Closing Date with the same effect as
though made on and as of such date.
(b) Performance; Document Delivery. SEI shall have performed in all
material respects, at or prior to the Closing Date, all acts in accordance with
its covenants set forth herein, including, but not limited to, delivery to the
Shareholders of the following documents:
(i) A good standing certificate regarding SEI certified by the
Secretary of State of the State of Delaware dated within five (5) business
days prior to Closing;
(ii) A certificate dated as of the Closing Date signed by a duly
authorized officer of SEI certifying that the representations and
warranties of SEI set forth herein are true and correct in all material
respects as of the Closing Date and that SEI has fulfilled all of the
conditions of this Section 8;
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(iii) Resolutions adopted by the Board of Directors of SEI
approving the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby, certified by the
Secretary of SEI; and
(iv) An incumbency certificate certifying the identity of the
officers of SEI.
(c) Opinion of Counsel. SEI shall have delivered to the Shareholders
an opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇, A Professional Limited Liability
Company, counsel to SEI, dated the Closing Date, substantially in the form
attached hereto as Schedule 8(c).
(d) No Injunction, Etc. No action proceeding, investigation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business or operations of SEI, if such
action, proceeding, investigation or legislation, in the reasonable judgment of
the Shareholders or their counsel, would make it inadvisable to consummate such
transactions.
(e) SEI Pooling Letter. SEI shall have executed and delivered the SEI
Pooling Letter to E&Y and to the ▇▇▇▇▇▇▇ Accountants and a copy thereof to the
Shareholders.
Section 9. Conditions to Obligation of SEI to Effect the Transfer. The
obligations of SEI to effect the Transfer shall be subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) Due Diligence Review; Delivery of Schedules. SEI shall have
completed, and in its sole discretion be satisfied with the results of, its due
diligence review of the operations and financial condition of the Company. The
Shareholders shall have delivered to SEI the Schedules called for by this
Agreement, and such Schedules shall be satisfactory to SEI in its sole
discretion.
(b) Representations and Warranties. The representations and warranties
of each Shareholder contained in this Agreement, or any document or instrument
delivered to SEI hereunder, shall be true and correct as of the Closing Date
with the same effect as though made on and as of such date.
(c) Performance; Document Delivery. Each Shareholder shall have
performed, at or prior to the Closing Date, all acts in accordance with their
covenants herein, including, but not limited to, delivery to SEI of the
following documents:
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(i) A good standing certificate regarding the Company certified
by the Secretary of State of such party's state of organization dated
within five (5) business days prior to Closing;
(ii) A certificate dated as of the Closing Date signed by each
Shareholder certifying that the representations and warranties of each
Shareholder set forth herein are true and correct as of the Closing Date
and that each Shareholder has fulfilled all of the conditions of this
Section 9;
(iii) Certificates representing the Shares, together with
accompanying stock transfer powers or instruments of assignment, duly
endorsed in blank by the applicable Shareholder;
(iv) Resignations of each of the officers and directors of the
Company effective as of the Closing Date;
(v) Releases of each Shareholder and each officer and director of
the Company concerning any claim against the Company (other than current
accrued wages and benefits), including any claims for indemnification,
contribution or otherwise arising with respect to this Agreement, the
representations, warranties and agreements contained herein and the
transactions contemplated hereby;
(vi) All books and records of the Company, including all corporate
and other records, minute books, stock record books, stock registers, books
of accounts, contracts, agreements and such other documents or certificates
as shall be reasonably requested by SEI; and
(vii) Evidence that all agreements or arrangements, whether
written or oral, among the Shareholders and/or the Company that relate in
any manner to the Company Common Stock have been terminated.
(d) No Adverse Change. There shall not have been any change between
the date of the latest Financial Statements and the Closing Date which has had
or will have a material adverse effect on the business, operations, financial
condition, Assets or prospects of the Company, and a certificate shall have been
delivered to SEI to such effect signed by each of the Shareholders and such
executive officers of the Company as SEI may request.
(e) Opinion of Counsel. SEI shall have been furnished with a favorable
opinion of counsel to the Shareholders, dated the Closing Date, substantially in
the form attached hereto as Schedule 9(e).
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(f) Consents and Approvals. The Shareholders shall have obtained all
necessary consents and approvals, in form and substance satisfactory to SEI,
required under all leases and other material contracts pertaining to the Assets
or the business of the Company and satisfying any approval or permit or
licensing requirements for consummation of this transaction and necessary to
carry on the business of the Company as it is currently being conducted.
(g) No Injunction, Etc. No action, proceeding, investigation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit or obtain
substantial damages in respect of, or which is related to or arises out of, this
Agreement or the consummation of the transactions contemplated hereby, or which
is related to or arises out of the business or operations of the Company, if
such action, proceeding, investigation or legislation, in the reasonable
judgment of SEI or its counsel, would make it inadvisable to consummate such
transactions.
(h) Lock-up Agreements. Each Shareholder shall have entered into an
agreement with SEI restricting the resale of shares of SEI Common Stock
substantially in the form attached hereto as Schedule 9(h).
(i) Non-Compete Agreements. SEI and each of the Shareholders shall
have entered into Non-Compete Agreements substantially in the form attached
hereto as Schedule 9(i).
(j) Employment Agreements. The Company and certain employees of the
Company (including without limitation ▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇) shall
have entered into employment agreements substantially in the form attached
hereto as Schedule 9(j).
(k) Escrow Agreement. SEI and each of the Shareholders shall have
entered into the Escrow Agreement.
(l) Pension Plan Liability. SEI shall be satisfied that it will incur
no liability with respect to pension or other post-retirement benefits, except
pursuant to SEI's pension plan in which all full-time Company employees, who
will remain employed by the Company after the Closing, are eligible to
participate.
(m) UCC Lien Search. SEI shall have received a satisfactory UCC lien
search on the Company from the office of the Secretary of State of the Company's
state of incorporation and each state listed in Schedule 5(a), and from the
appropriate office in each county in which the Company has business operations.
Such lien searches will be conducted by an entity or individual acceptable to
SEI at the Shareholders' sole expense.
(n) Board Approval. This Agreement and the Transfer shall have been
approved and authorized by the Board of Directors of SEI.
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(o) Shareholder Pooling Letter. The Shareholders shall have executed
and delivered the Shareholder Pooling Letter to E&Y and to the ▇▇▇▇▇▇▇
Accountants and a copy thereof to counsel for SEI.
(p) Pooling. SEI shall be satisfied that the Transfer will qualify for
accounting by SEI as a pooling of interests under generally accepted accounting
principles and under applicable rules and regulations of the SEC. In connection
therewith, SEI shall have received, on or before the Closing Date, a letter
executed by a duly authorized representative of E&Y (or any other accountant of
SEI's choosing) dated as of the Closing Date to the effect that the transactions
contemplated by this Agreement may be treated by SEI as a "pooling of interests"
for accounting purposes. SEI shall have received, on or before the Closing Date,
a letter executed by a duly authorized representative of the ▇▇▇▇▇▇▇ Accountants
dated as of the Closing Date to the effect that the transactions contemplated by
this Agreement may be treated by SEI as a "pooling of interests" for accounting
purposes.
Section 10. Expenses. Each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection with the
Transfer, including its own legal, accounting and audit fees.
Section 11. Indemnification.
(a) Indemnification of SEI. The Shareholders, jointly and severally,
agree to indemnify and hold harmless SEI, each officer, director, employee or
agent thereof, their respective controlling persons, and their respective
estates, successors, and assigns (each an "Indemnified Party"), from and against
any and all claims, losses, damages, liabilities and expenses (including,
without limitation, settlement costs and any legal or other expenses for
investigating or defending any actions or threatened actions) (the "Losses")
reasonably incurred by such Indemnified Party as a result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty made by the Shareholders pursuant to Section 5 of this Agreement
or any other Transaction Document;
(ii) the nonfulfillment or breach of any covenant, agreement or
obligation of the Shareholders contained in this Agreement or any other
Transaction Document;
(iii) any and all amounts of federal, state, and/or local income,
franchise, property, and/or sales and use taxes that may be assessed
against SEI or Company with respect to any taxable period(s) ending on or
before the date of this Agreement for which adequate provisions therefor
have not been made through the Closing Date, as reflected on the Company's
books of account and in the Company's financial statements as of the
Closing Date; and the amount(s) of any interest and/or penalties that may
be assessed with respect to said tax assessments;
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(iv) any matter on any Schedule hereto as may be specifically
identified for indemnification in this Agreement or any other Transaction
Document; and
(v) any claim or demand by any person asserting any interes in
any share of Company Common Stock or seeking dissenters' or appraisal
rights or any other claim in respect to the Transfer.
(b) Limitations on the Shareholders' Indemnity. The Shareholders shall
be obligated to indemnify and hold harmless SEI pursuant to Section 11(a) only
to the extent that the aggregate of all indemnifiable Losses exceeds one percent
of the Exchange Price; provided however that each Shareholder's indemnity
obligation shall not exceed such Shareholder's pro rata share of the Exchange
Price.
(c) Indemnification of the Shareholders. SEI shall indemnify and hold
harmless the Shareholders pro rata in accordance with their holdings of shares
of Company Common Stock as of the Closing (each an "Indemnified Party") from and
against any and all Losses reasonably incurred by such Indemnified Party as a
result of:
(i) the untruth, inaccuracy or breach of any representation or
warranty made by SEI in this Agreement or in any other Transaction
Document; or
(ii) the nonfulfillment or breach of any covenant, agreement or
obligation of SEI contained in this Agreement or in any other Transaction
Document.
(d) Notification. Whenever any claim shall arise for indemnification
hereunder, the Indemnified Party shall notify the indemnifying party promptly
after such Indemnified Party has actual knowledge of the facts constituting the
basis for such claim, except that, in the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, such Indemnified Party shall give prompt notice to the
indemnifying party of such claim or the commencement of legal proceedings in
respect of which recovery may be sought against the indemnifying party pursuant
to the provisions of this Section 10. The notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The Indemnified Party shall not settle or compromise any such
claim without the prior written consent of the indemnifying party unless suit
shall have been instituted against the Indemnified Party and the indemnifying
party shall have failed, within fifteen (15) days after notice of institution of
the suit, to take control of such suit as provided in Section 10(e) below.
(e) Defense of Actions. In connection with any claim giving rise to
indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the indemnifying
party, at its sole cost and expense, may, upon written notice to the Indemnified
Party, assume the defense of such claim or legal proceeding, to the extent that
the indemnifying party admits in writing its liability to the Indemnified Party
with respect to all material elements thereof. If the indemnifying party assumes
the defense of any such claim or legal proceeding, the obligations of the
indemnifying party hereunder as to such
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claim or legal proceeding shall be limited to taking all steps necessary in the
defense or settlement thereof and to holding the Indemnified Party harmless from
and against any losses, damages, expenses, or liability caused by or arising out
of any settlement approved by the indemnifying party or any judgment in
connection with such claim or legal proceeding. Each Indemnified Party agrees
that it will cooperate with the indemnifying party in the defense of any such
action, the defense of which is assumed by the indemnifying party. Except with
the consent of the Indemnified Party, the indemnifying party shall not consent
to the entry of any judgment arising from any such claim or legal proceeding
which, in each case, does not include as an unconditional term thereof the
delivering by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect thereof, unless the indemnifying party has
actually paid to the Indemnified Party the full amount of such judgment or
settlement. If the indemnifying party does not assume the defense of any claim
or litigation, any Indemnified Party may defend against such claim or litigation
in such manner as it may deem appropriate, including, but not limited to,
settling such claim or litigation, after giving notice of the same to the
indemnifying party, on such terms as the Indemnified Party may deem appropriate.
The indemnifying party will promptly reimburse the Indemnified Party in
accordance with the provisions hereof.
(f) Payment. All indemnification hereunder shall be effected by
payment of cash or delivery of a certified or official bank check in the amount
of the indemnification liability or by set-off against (i) any amounts otherwise
owed by SEI to the Shareholders or by the Shareholders to SEI, as the case may
be, or (ii) the funds held pursuant to the Escrow Agreement.
Section 12. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered,
mailed by first-class registered or certified mail, postage prepaid, return
receipt requested or delivered by an overnight courier service, delivery charge
prepaid:
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(a) If to the Shareholders, to:
▇▇▇▇▇▇ ▇ ▇▇▇▇
Delvona R. Rude
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇'▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇, ▇.▇.
1600 Washington Trust Financial Center
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
or at such other address as may be furnished to SEI by the S
Shareholders in writing.
(b) If to SEI, to:
Service Experts, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇,
A Professional Limited Liability Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇. ▇▇▇▇▇ ▇▇▇▇, Esq.
or at such other address as may have been furnished to the
Shareholders by SEI in writing.
Section 13. Miscellaneous.
(a) Entire Agreement. This Agreement and the
Schedules, certificates and other documents delivered pursuant hereto contain
and constitute the entire agreement and understanding between the Company,
Shareholders and SEI and supersede and cancel all prior agreements and
understandings relating to the subject matter hereof, whether written or oral,
which shall remain in effect. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated, except in writing signed by the
parties hereto.
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(b) Severability. Should any one or more of the
provisions of this Agreement or any agreement entered into pursuant hereto be
determined to be illegal or unenforceable, all other provisions of this
Agreement and such other agreements shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and shall not
be affected thereby.
(c) Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the State of Tennessee
without regard to its principles of conflicts of laws.
(d) Further Assurances. Each party covenants that at
any time, and from time to time, after the Closing, it will execute such
additional instruments and take such actions as may be reasonably requested by
the other parties to confirm or perfect or otherwise to carry out the intent and
purposes of this Agreement.
(e) Waiver. Any failure on the part of any party to
comply with any of its obligations, agreements or conditions hereunder may be
waived by any other party to whom such compliance is owed. No waiver of any
provision of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.
(f) Assignment. SEI may assign its rights under this
Agreement to any affiliated entity, but otherwise this Agreement shall not be
assignable by any of the parties hereto, by operation of law or otherwise,
without the written consent of all other parties.
(g) Binding Effect. All of the terms of this
Agreement, whether so expressed or not, shall be binding upon the respective
personal representatives, successors and assigns of the parties hereto and shall
inure to the benefit of and be enforceable by the respective personal
representatives, successors and assigns of the parties hereto. This Agreement
shall survive the Closing and not be merged therein.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(j) Survival. Except as otherwise set forth herein,
all of the representations, warranties and covenants of the parties contained in
this Agreement or in any other Transaction Document shall survive the Closing
for a period of three (3) years and shall not be extinguished thereby
notwithstanding any investigation or other examination by any party.
Notwithstanding the foregoing, the representations, warranties and covenants of
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the Shareholders contained in Sections 5(b), 5(j), 5(l), 5(p) and 10 shall
survive the Closing for the applicable statutes of limitations.
(k) Construction of Terms. The language used in the
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against any party hereto. The parties acknowledge that each party has
reviewed this Agreement and that normal rules of construction to the effect that
any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement. Whenever the masculine gender
is used herein, it shall be deemed to include the feminine and the neuter.
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IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and date first above written.
SERVICE EXPERTS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
-----------------------------------
Title: Vice President
--------------------------------
SHAREHOLDERS
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ Delvona R. Rude
---------------------------------------
DELVONA R. RUDE
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LIST OF SCHEDULES TO BE PROVIDED BY THE SHAREHOLDERS
Schedule 2(e)(ii)(C) Excluded Indebtedness
--------------------
Schedule 5(a) Jurisdictions Where Qualified
-------------
Schedule 5(b) Stock Ownership
-------------
Schedule 5(e) Subsidiaries and Investments
-------------
Schedule 5(h) Absence of Certain Changes
-------------
Schedule 5(i) Exceptions to Ownership of Assets
-------------
Schedule 5(k) Insurance
-------------
Schedule 5(l)(iv) Environmental Disposal
-----------------
Schedule 5(l)(viii) Underground Storage Tanks
-------------------
Schedule 5(m) Contracts and Commitments
-------------
Schedule 5(n) Liabilities
-------------
Schedule 5(o)(i) Employees and Labor Matters
----------------
Schedule 5(o)(ii) Noncompete Agreements
-----------------
Schedule 5(p)(i) Employee Benefit Plans and Agreements
----------------
Schedule 5(p)(ii) Determination Proceedings
-----------------
Schedule 5(p)(vi) COBRA
-----------------
Schedule 5(r) Litigation
-------------
Schedule 5(s) Compliance with Laws, Regulations and Court Orders
-------------
Schedule 5(u) Consents and Approvals
-------------
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LIST OF SCHEDULES TO BE PROVIDED BY SEI
Schedule 2(b) Form of Escrow Agreement
-------------
Schedule 8(c) Form of Opinion of Counsel to SEI
-------------
Schedule 9(e) Form of Opinion of Counsel to the Shareholders
-------------
Schedule 9(h) Form of Lock-up Agreement
-------------
Schedule 9(i) Form of Non-Compete Agreement
-------------
Schedule 9(j) Form of Employment Agreement
-------------
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