<PAGE> 1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
April 9, 1997 (March 31, 1997)
------------
SERVICE EXPERTS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-21173 62-1639453
--------------- ----------------- ----------------
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification
Incorporation) Number)
111 Westwood Place
Suite 420
Brentwood, Tennessee 37027
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(615) 371-9990
----------------------------------------------------
(Registrant's telephone number, including area code)
1134 Murfreesboro Road
Nashville, Tennessee 37217
------------------------------------------------------------
(Former name or former address, if changed since last report)
===============================================================================
Page 1 of 4 pages
Exhibit Index located on Page 4
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 1997, Service Experts, Inc., a Delaware
corporation ("SEI"), consummated the acquisition of all of the issued and
outstanding capital stock (the "Combination") of Roland J. Down, Inc., a New
York corporation (the "Company"), pursuant to a Combination Agreement, dated as
of February 17, 1997, by and among SEI, the Company and the sole shareholder of
the Company (the "Shareholder"). The Company operates a residential heating,
ventilating and air-conditioning ("HVAC") service and replacement business in
Albany, New York. The consideration paid by SEI to the Shareholder in
connection with the Combination consisted of $11,200,000 in cash. The
consideration paid in the Combination was determined through negotiations
between the parties. The factors considered by SEI in determining the
consideration to be paid included, among others, the historical operating
results, the net worth, the levels and type of indebtedness and the future
prospects of the Company. SEI funded the cash payable in connection with the
Combination with a portion of the proceeds from its recently completed public
offering of Common Stock.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
None Required.
(b) Pro Forma Financial Information.
None Required.
(c) Exhibits.
2 Combination Agreement, dated as of February
17, 1997, by and among the Registrant, the
Company and the Shareholder.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SERVICE EXPERTS, INC.
By: /s/ Anthony M. Schofield
-----------------------------------
Anthony M. Schofield
Chief Financial Officer,
Secretary and Treasurer
Date: April 9, 1997
3
<PAGE> 4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ -----------------------
2 -- Combination Agreement, dated as of February 17, 1997,
by and among the Registrant, Roland J. Down, Inc. and
Roland J. Down.
4
<PAGE> 1
EXHIBIT 2
COMBINATION AGREEMENT
This COMBINATION AGREEMENT (this "Agreement"), dated as of February
17, 1997, is by and among Roland J. Down, the sole shareholder (the
"Shareholder") of Roland Down, Inc., a New York corporation (the "Company"),
the Company and Service Experts, Inc., a Delaware corporation ("SEI").
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 Shareholder owns all of the issued and outstanding shares
of capital stock of the Company (the "Shares");
WHEREAS, the Boards of Directors of SEI and the Company each have
determined that a business combination (the "Combination") between SEI and the
Company is in the best interests of their respective companies and shareholders
and presents an opportunity for their respective companies to achieve long-term
strategic and financial benefits, and, accordingly, have agreed to effect the
transaction provided for herein upon the terms and subject to the conditions
set forth herein; and
WHEREAS, SEI and the Company desire to make certain representations,
warranties and agreements in connection with the Combination.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1. Transfer of Shares. In accordance with the terms
and conditions set forth in this Agreement, the Shareholder will transfer,
convey, assign and deliver all of the Shares, free and clear of all liens,
encumbrances and claims whatsoever, to SEI in exchange for the purchase price
specified in Section 2 hereof.
Section 2. Purchase Price; Exchange of Certificates.
(a) The purchase price (the "Purchase Price") for
the Shares shall be $11,200,000, payable by certified or official bank check,
in next day funds, or in such other form and manner as may be mutually
satisfactory (the "Cash"). SEI shall pay the Cash to the Shareholder at
Closing (as defined below) in exchange for all of the Shares.
<PAGE> 2
(b) An aggregate of 10% of the cash to be paid
pursuant to Section 2(a) shall be held in escrow pursuant to the terms and
conditions of the escrow agreement attached hereto as Schedule 2(b) (the
"Escrow Agreement").
Section 3. The Closing. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place, following
satisfaction of all of the conditions set forth in Sections 8, 9 and 10 hereof,
or the waiver thereof (the "Closing Date"), at the offices of Waller Lansden
Dortch & Davis, A Professional Limited Liability Company, in Nashville,
Tennessee, or at such other location as the parties shall mutually agree.
Section 4. Representations and Warranties of the Shareholder.
The Shareholder represents and warrants to SEI as follows as of the date hereof
and also as of the Closing Date:
(a) Title to the Shares. The Shareholder has and
will have on the Closing Date good and marketable title to the Shares
with full right and authority to transfer the Shares hereunder, and on
transfer of the Shares, SEI will receive good and marketable title to
the Shares, free and clear of all liens, encumbrances and claims
whatsoever. The Shareholder owns the number of Shares set forth
opposite his name on Schedule 4(a) attached hereto, which Shares
collectively represent all of the outstanding capital stock of the
Company.
(b) Organization, Authority and Capacity. The
Shareholder is a natural person and has the full authority and
capacity necessary to execute, deliver and perform his obligations
under all agreements, instruments and documents to be executed and
delivered in connection with the transactions contemplated hereby (the
"Transaction Documents") to be executed and delivered by the
Shareholder.
(c) Authorization and Validity. The Shareholder
is a natural person and has the legal capacity required for executing,
delivering and performing the Transaction Documents to be executed and
delivered by the Shareholder. If the Shareholder is married and the
Shareholder's interest in the Company constitutes community property,
the Transaction Documents to be executed and delivered by the
Shareholder's spouse have been or will be, as the case may be, duly
executed and delivered by the Shareholder's spouse and constitute or
will constitute the legal, valid and binding obligations of the
Shareholder's spouse, enforceable in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, fraudulent
conveyance or other laws affecting creditors' rights generally, or as
may be modified by a court of equity.
(d) Absence of Conflicting Agreements or Required
Consents. The execution, delivery and performance by the Shareholder
of the Transaction Documents to be executed and delivered by the
Shareholder (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 or result in a violation of any law, ordinance,
regulation, ruling, judgment,
2
<PAGE> 3
order or injunction of any court or governmental instrumentality to
which the Shareholder is subject or by which the Shareholder is bound;
(iii) will not conflict with, constitute grounds for termination of,
result in a breach of, constitute a default under, require any notice
under, or accelerate or permit the acceleration of any performance
required by the terms of any agreement, instrument, license or permit
material to the Combination; and (iv) will not create any encumbrance
or restriction upon the Shares.
(e) Interested Transaction. Except as set forth
on Schedule 4(e), the Shareholder is not a party to any contract, loan
or other transaction with the Company and the Shareholder has no
direct or indirect interest in or affiliation with any party to any
such contract, loan or other transaction. Except as set forth on
Schedule 4(e), the Shareholder is not an employee, consultant,
partner, principal, director or owner of, and has no other direct or
indirect interest in or affiliation with, any person or business
entity that is engaged in a business that competes with or is similar
to the business of the Company.
(f) Access to Information. The Shareholder has
had access during the course of this transaction to such information
relating to SEI as he has desired, has had the opportunity to ask
questions of and receive answers from SEI and its representatives
concerning the terms and conditions of the Combination and to obtain
such additional information about the business and financial condition
of SEI as the Shareholder or his representative has requested (to the
extent SEI possessed such information or could acquire it without
unreasonable effort or expense).
Section 5. Representations and Warranties of the Company and the
Shareholder. The Company and the Shareholder jointly and severally represent
and warrant 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
holds all licenses, permits and other required authorizations from
governmental authorities necessary to conduct its business as it is
now being conducted. The Company is duly qualified to do business and
is in good standing in the jurisdictions set forth in Schedule 5(a) ,
which includes every jurisdiction in which the failure to be so
qualified or in good standing would have a material adverse effect on
(A) the Company's ability to perform its obligations under this
Agreement and all accompanying documents to be executed and delivered
by the Company in connection with the business combination (the
"Transaction Documents") or (B) the assets, results of operations or
prospects of the Company.
3
<PAGE> 4
(ii) A copy of the Company's Articles of
Incorporation and Bylaws, as amended to the date hereof, the books of
account, minute books, stock record books and other records of the
Company, all of which have been made available to SEI, are complete
and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal
controls. The minute books of the Company contain accurate and
complete records of all meetings of, and corporate action taken by,
the Shareholder, the Board of Directors and committees of the Board of
Directors of the Company, and no meeting of any such Shareholder,
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. The authorized capital stock
of the Company consists of 900 shares of Common Stock, 197.44 shares of which
are issued and 98.72 shares of which are outstanding as of the date hereof and
constitute the Shares. There are no other classes of securities of the Company
outstanding. All of the Shares are listed and held of record as indicated on
Schedule 5(b) and have been duly authorized and validly issued and are fully
paid and nonassessable. There are no contracts relating to the issuance, sale,
transfer or registration of the Shares or any other securities of the Company.
There are no options, warrants, preemptive rights or other rights to purchase
the Shares or any other securities of the Company. None of the Shares or other
securities of the Company were issued in violation of the Securities Act of
1933, as amended or preemptive rights of any past or present holder of the
Shares.
(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 the Company, enforceable against it in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) No Defaults; Absence of Conflicts. The
Company is not in default under, nor has any event occurred which, with the
lapse of time or action by a third party, could result in a default under, any
outstanding indenture, mortgage, contract or agreement to which the Company is
a party. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement will not (i)
violate any provision of, or result in the breach of, or constitute a default
under, or conflict with, (A) any terms or provisions of the Articles of
Incorporation or Bylaws of the Company or any resolution of the Company's Board
of Directors, (B) any law the violation of which would result in a material
liability to the Company, or (C) any order, writ, injunction or decree of any
court, governmental agency or arbitration tribunal; (ii) constitute a violation
of or a default under, or a conflict with, any term or provision of any
contract, commitment, indenture, lease or other agreement, or any other
restriction of any kind to which the Company is a party or by which the Company
is bound; (iii) cause, or give any party grounds to cause (with or without
notice,
4
<PAGE> 5
the passage of time or both) the maturity of any liability or obligation of the
Company to be accelerated, or increase any such liability or obligation; or
(iv) create any lien, encumbrance or restriction upon any of the assets or
properties of the Company.
(e) Subsidiaries, Investments and Predecessors.
Except as set forth on Schedule 5(e), the Company has not owned and does not
currently own, directly or indirectly, beneficially or equitably, any capital
stock or other equity, ownership or proprietary interest in any corporation,
partnership, limited liability company, association, trust, joint venture or
other entity. Set forth on Schedule 5(e) is a listing of all predecessor
companies of the Company, including the names of any entities from whom the
Company previously acquired material assets, and any other entity of which the
Company has been a subsidiary or division. Except as listed on Schedule 5(e),
the Company has not sold or disposed of, by way of asset sale, stock sale,
spin-off or otherwise, any material assets or business of the Company.
(f) Financial Statements. The financial
statements of the Company for the fiscal years ended December 31, 1994, 1995
and 1996 and the audit report thereon of Tate, DiSanto & Mirochnik, independent
auditors, copies of which are attached hereto as Schedule 5(f), are true,
correct and complete, have been prepared in accordance with generally accepted
accounting principles, and fairly and accurately present the financial and
business condition of the Company as of the dates thereof and the results of
the operations of the Company for the periods covered thereby. The financial
statements set forth in Schedule 5(f) are collectively, together with the notes
thereto, referred to as the "Financial Statements." The Financial Statements
accurately reflect or adequately provide for all claims against, and all debts
and liabilities of, the Company, fixed or contingent, existing at the dates
thereof.
(g) Accounts Receivable and Payable. The
accounts receivable reflected on the Financial Statements arose in the ordinary
course of business and, except as reserved against on the Financial Statements,
are collectible in the ordinary course of business and consistent with past
practices, free of any claims, rights or defenses of any account debtor.
Except as set forth on Schedule 5(g), no accounts payable of the Company are,
at this date, over 45 days old and no accounts payable of the Company will be
over 45 days old at the Closing Date.
(h) Absence of Certain Changes. Except as
disclosed on Schedule 5(h) or as reflected on the Financial Statements, the
Company has not, since December 31, 1995, except in the ordinary course of
business consistent with past practice:
(i) changed the Company's authorized or
issued capital stock; granted any stock option or right to purchase
shares of capital stock of the Company; issued any security
convertible into such capital stock; granted any registration rights;
purchased, redeemed, retired, or otherwise acquired any shares of any
such capital stock; or declared or paid any dividend or other
distribution or payment in respect of shares of capital stock;
5
<PAGE> 6
(ii) amended the Articles of
Incorporation, Bylaws or other organizational documents of the
Company;
(iii) incurred any indebtedness or other
liabilities (whether accrued, absolute, contingent or otherwise),
guaranteed any indebtedness or sold any assets;
(iv) suffered any damage, destruction or
loss to any of the tangible assets of the Company, whether or not
covered by insurance;
(v) increased the regular rate of
compensation payable by it to any employee or increased such
compensation by bonus, percentage, compensation service award or
similar arrangement theretofore in effect for the benefit of any of
its employees, and no such increase is required;
(vi) hired, committed to hire or
terminated any employee;
(vii) established or agreed to establish
any pension, retirement or welfare plan for the benefit of its
employees not theretofore in effect;
(viii) experienced any labor organizational
efforts, strikes or formal complaints or entered into any collective
bargaining agreements with any union;
(ix) suffered any change in its financial
condition, assets, liabilities, business or prospects or suffered any
other event or condition of any character which individually or in the
aggregate has or might reasonably be expected to have a material
adverse effect on its business or prospects;
(x) entered into any commitments or
transactions or made any capital expenditures involving aggregate
amount or value in excess of $25,000 or made any single capital
expenditure which exceeded $10,000;
(xi) disposed of any of its assets,
written down the value of any assets, written off as uncollectible any
accounts receivable or revalued any of its assets;
(xii) subjected any of its assets,
tangible or intangible, to any lien, encumbrance or restriction
whatsoever, except for liens for current property taxes not yet due
and payable;
(xiii) paid, discharged or satisfied any
claims, liabilities or obligations (absolute, accrued, contingent or
otherwise);
(xiv) entered into, terminated or received
notice of termination of (A) any license, distributorship, dealer,
sales representative, joint venture, credit, or
6
<PAGE> 7
similar agreement, or (B) any contract or transaction involving a
total remaining commitment by or to the Company of at least $10,000;
(xv) cancelled or waived any claims or
rights with a value to the Company in excess of $10,000;
(xvi) made any change in any method of
accounting or accounting practice;
(xvii) canceled, or failed to continue,
insurance coverage; or
(xviii) agreed, whether in writing or
otherwise, to take any action described in this Section 5(h).
(i) Ownership of Properties. Schedule 5(i)(i)
sets forth a list of all of the material assets of the Company owned, leased or
used by the Company in connection with the operation of its business (the
"Assets"), including, as to real property owned or leased by the Company (the
"Real Property"), the legal description of the Real Property. The present
zoning, subdivision, building and other ordinances and regulations applicable
to the Real Property permit the continued operation, use, occupancy and
enjoyment of the Real Property consistent with past practices, and the Company
is in compliance with, and has received no notices of violations of, any
applicable zoning, subdivision or building regulation, ordinance or other law,
regulation, or requirement. Except as set forth on Schedule 5(i)(ii), the
Company has good and marketable title to all of the Assets owned by it
including furniture, fixtures and equipment, fixed assets and inventory, and
all contract rights and intangible assets, and good and valid leasehold estates
in all of the Assets leased by it, free and clear of mortgages, security
interests, liens, defects, charges, encumbrances, restrictions and rights of
third parties (excluding accounts payable in the ordinary course of business).
Schedule 5(i)(ii) also includes a UCC lien search for the Company showing
security interests of record relating to the Assets in every place where such
security interests are legally required to be filed and include copies of all
such financing statements. All equipment and other personal property
constituting a portion of the Assets is in good operating condition and repair,
ordinary wear and tear excepted. The Assets constitute all of the operating
assets of the Company necessary or appropriate for the continued operation of
the business of the Company. The Company has sufficient title in and to the
Assets necessary or advisable to operate and conduct the business of the
Company in the same fashion as the Company was conducting such business.
(j) Taxes. The Company has timely filed all
federal, state and local tax returns or information returns required to be
filed by it. All of such returns have been prepared accurately and filed in
accordance with applicable laws and regulations. The Company has paid all
taxes and assessments (including, without limitation, income, excise,
unemployment, social security, occupation, franchise, property, sales and use
taxes, import duties or charges, and all penalties and interest in respect
thereof) due and payable by it. The Company and any predecessors in interest
have withheld or collected from each payment made to each of their
7
<PAGE> 8
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. 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. The Company maintains in full
force and effect, with no premium arrearages, insurance policies bearing the
numbers, for the terms, with the companies, in the amounts and providing the
coverage set forth on Schedule 5(k). True and correct copies of all such
policies, and all endorsements thereto, have been delivered to SEI. All such
policies are valid, outstanding and enforceable and taken together, provide
adequate insurance coverage for the Assets and operations of the Company and
will continue in full force and effect following the consummation of the
Combination. Except as set forth on Schedule 5(k), there are no pending claims
against such insurance by the Company as to which insurers are defending under
reservation of rights or have denied liability, and except as set forth on
Schedule 5(k), there exists no claim under such insurance that has not been
properly filed by the Company.
(l) Environmental Conditions.
(i) The Company is currently in
compliance with all Environmental Laws (as defined below), which
compliance includes, without limitation, the possession by the Company
of all permits and other governmental authorization required under
applicable Environmental Laws to operate the business as currently
operated, and is in compliance with the terms and conditions thereof.
(ii) The Company has not stored any
Hazardous Substances (as defined below) on any of the Real Property,
except in compliance with applicable Environmental Laws.
(iii) The Company has not disposed of or
released any Hazardous Substances on any of the Real Property.
(iv) The Company has not utilized any
transporters or disposal facilities for the transport or disposal of
Hazardous Substances except as indicated on Schedule 5(l)(iv).
(v) The Company has not received any
communication (written or oral), whether from a governmental
authority, citizen's group, employee or otherwise, that alleges that
such entity is not in full compliance with Environmental Laws, and
there are no circumstances that may prevent or interfere with such
full compliance in the
8
<PAGE> 9
future. There is no Environmental Claim (as defined below) pending or
threatened against the Company.
(vi) There have been no actions,
activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge, presence or
disposal of any Hazardous Substances that could form the basis of any
Environmental Claim against the Company, and the Company knows of no
such actions, activities, circumstances, conditions, events or
incidents.
(vii) The Real Property and, to the best
knowledge of the Company, adjoining properties, have never been
utilized for any industrial or commercial operation involving any
Hazardous Substance except in the ordinary course of business.
The following terms shall have the following
meanings:
"Environmental Claim" means any claim,
action, cause of action, investigation or notice (written or oral) by
any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup
costs, governmental response costs, natural resources damages,
property damages, personal injuries, or penalties) arising out of,
based on or resulting from (a) the presence, or release into the
environment, of Hazardous Substances at any location which is or has
been owned, leased, operated or utilized by the Company or (b)
circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means the federal,
state, regional, county or local environmental, health or safety laws,
regulations, ordinances, rules and policies and common law in effect
on the date hereof and the Closing Date relating to the use,
refinement, handling, treatment, removal, storage, production,
manufacture, transportation or disposal, emissions, discharges,
releases or threatened releases of Hazardous Substances, or otherwise
relating to protection of human health or the environment (including,
without limitation, ambient air, surface water, ground water, land
surface or subsurface strata), as the same may be amended or modified
to the date hereof and the Closing Date.
"Hazardous Substances" means any toxic or
hazardous waste, pollutants or substances, including, without
limitations, asbestos containing materials ("ACMs"), polychlorinated
biphenyls ("PCBs"), petroleum products, byproducts, or other
hydrocarbon substances, substances defined or listed as a "hazardous
waste", "hazardous substance", "toxic substance", "toxic pollutant",
or similarly identified substance or mixture, in or pursuant to any
Environmental Law and medical or infectious waste.
(m) Contracts and Commitments. Except as
described on Schedule 5(m) hereto, the Company is not a party or subject to any
of the following (whether written or oral,
9
<PAGE> 10
express or implied): (i) any agreement restricting competition or (ii) any
commitments or obligations, contingent or otherwise, under any contract or
agreement (A) for the purchase or sale of supplies, services or other items in
excess of $10,000 in any one instance, (B) for the purchase or sale of any
equipment or machinery which is capitalized or which is expensed and in excess
of $10,000, (C) for the performance of services for others in excess of $10,000
in any one instance or for a period of more than 90 days, (D) for the lease of
any property, tangible or intangible, (E) with any Shareholder, partner,
officer or director of the Company or any affiliate of such persons, (F) not in
the ordinary course of business or (G) for any power of attorney, whether
limited or general, granted by or to the Company. The Company has delivered to
SEI true and complete copies of all of the contracts, leases and agreements
described on Schedule 5(m) (the "Company Agreements"). Except as noted in such
Schedule, the Company Agreements are valid and in full force and effect, there
has been no threatened cancellation thereof and there are no outstanding
disputes thereunder; each is with unrelated third parties and was entered into
on an arms-length basis in the ordinary course of business; all will continue
to be binding in accordance with their terms after consummation of the
transactions contemplated herein; and to the knowledge of the Company, there is
no pending or threatened bankruptcy, insolvency or similar proceeding with
respect to any other party to the Company Agreements. There are no contracts,
leases, agreements or other instruments to which the Company is a party or is
bound (other than insurance policies) which could either singularly or in the
aggregate have an adverse effect on the value of the Company.
(n) No Undisclosed Liabilities. With the
exception of the liabilities set forth on Schedule 5(n) or as reflected on the
Financial Statements, the Company does not have any material liabilities or
obligations of any nature, whether absolute, accrued, contingent or otherwise
or whether due or to become due, and the Company and the Shareholder know or
have no reason to know of any basis for the assertion against the Company of
any such liability or obligation of any nature not described in Schedule 5(n).
(o) Employees and Labor Matters.
(i) Schedule 5(o) contains a complete
and accurate list of the following information for each employee or
director of the Company: name; job title; current compensation paid or
payable and any change in compensation since December 31, 1995;
vacation accrued; and service credited for purposes of vesting and
eligibility to participate under any pension, retirement,
profit-sharing, thrift-savings, deferred compensation, stock bonus,
stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay,
insurance, medical, welfare, or vacation plan, or any other employee
benefit plan or any director plan.
(ii) No employee or director of the
Company is a party to, or is otherwise bound by, any agreement or
arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such employee or director and
any other person or entity that in any way adversely affects or will
affect (A) the
10
<PAGE> 11
performance of his duties as an employee or director of the Company,
or (B) the ability of the Company to conduct its business. To the
Company's knowledge, no director, officer, or other key employee of
the Company intends to terminate his employment with the Company.
(iii) The Company is in compliance in all
material respects with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours, occupational safety and health, including laws concerning
unfair labor practices within the meaning of Section 8 of the National
Labor Relations Act, and the employment of non-residents under the
Immigration Reform and Control Act of 1986.
(iv) Except as disclosed on Schedule
5(o),
(A) there are no charges,
governmental audits, investigations, administrative
proceedings or complaints concerning the Company's employment
practices pending or, to the knowledge of the Company,
threatened before any federal, state or local agency or court,
and, to the knowledge of the Company, no basis for any such
matter exists;
(B) the Company is not a party to
any union or collective bargaining agreement, and, to the
knowledge of the Company, no union attempts to organize the
employees of the Company have been made, nor are any such
attempts now threatened; and
(C) the Company has not experienced
any organized slowdown, work interruption, strike or work
stoppage by its employees.
(p) Employee Benefit Matters. The employee
benefit plans and agreements described in Schedule 5(p) hereto are the only
employee benefit plans and agreements maintained by the Company for the benefit
of its Shareholder, officers, directors, employees, former employees, or
independent contractors, including, without limitation, (i) profit sharing,
pension, ESOP, 401(k) or other retirement plans or programs, (ii) current and
deferred compensation, severance, vacation, stock purchase, stock option, bonus
and incentive compensation benefits and (iii) medical, hospital, life, health,
accident, disability, death and other fringe and welfare benefits, including
any split- dollar life insurance policies, all of which plans, programs,
practices, policies and other individual and group arrangements and agreements,
including any unwritten compensation, fringe benefit, payroll or employment
practices, procedures or policies of any kind or description are hereinafter
referred to as the "Benefit Plans." Except as disclosed on Schedule 5(p),
there are no contributions or payments due with respect to any of the Benefit
Plans, nor will any such contributions or payments be due or required to be
paid on or prior to the Closing Date. Each Benefit Plan of the Company has
been operated and administered in substantial compliance with the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and the
provisions of the Code applicable
11
<PAGE> 12
to it. No Benefit Plan of the Company that is subject to the minimum funding
standards of ERISA or the Code, if any, has incurred any accumulated funding
deficiency within the meaning of ERISA or the Code. All contributions with
respect to a Benefit Plan of the Company that is subject to Code Section 412 or
ERISA Section 302 have been timely made and there is no lien or expected to be
a lien under Code Section 412(n) or ERISA Section 302(f) or tax under Code
Section 4971. No Benefit Plan of the Company has a "liquidity shortfall" as
defined in Code Section 412(m)(5). The Company is not subject to and cannot
reasonably be expected to become subject to a lien under Code Section
401(a)(29). No event has occurred in connection with a Benefit Plan of the
Company that could result in liability to the Company under Title IV of ERISA.
The Company has not incurred any liability to the Pension Benefit Guaranty
Corporation in connection with any Benefit Plan of the Company which is subject
to Title IV of ERISA, if any. The assets of each Benefit Plan of the Company
that is subject to Title IV of ERISA, if any, are sufficient to provide all
"benefit liabilities" (as defined in ERISA Section 4001(a)(16)) under such
Benefit Plan if such Benefit Plan terminated, and are also sufficient to
provide all other benefits due under the Benefit Plan (including, but not
limited to, ancillary, disability, shutdown, early retirement and welfare
benefits). The Company has not had an "obligation to contribute" (as defined
in ERISA Section 4212) to a "multi-employer pension plan" (as defined in ERISA
Sections 4001(a)(3) and 3(37)(A)) at any time. No event which constitutes a
reportable event as defined in Section 4043 of ERISA has occurred or is
continuing with respect to any Benefit Plan covered by ERISA. No facts exist
which will result in a material increase in the premium costs of any Benefit
Plan for which benefits are insured or a material increase in benefit costs of
any Benefit Plan which provides self-insured benefits. No "prohibited
transaction" (as defined in ERISA Section 406 or Code Section 4975) has
occurred with respect to any Benefit Plan. None of the Benefit Plans has any
current or projected liability in respect of post-employment or post-retirement
health or medical or life insurance benefits for former or retired employees of
the Company, except as required to avoid excise taxes under Code Section 4980B.
All Benefit Plans subject to Code Section 4980B or Part 6 of Title I of ERISA
have been maintained in compliance with the requirements of Code Section 4980B
and Part 6 of Title I of ERISA. There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company that could
result in the payment of any amount that would not be deductible under Code
Sections 162(m) or 280G. As of the Closing Date, the Company has no material
liabilities under any Benefit Plan that is not reflected in the Financial
Statements.
(q) Trademarks, Trade Names, Etc. Set forth on
Schedule 5(q) is a description of each trademark, trade name, service mark,
patent or copyright held by the Company and any current registration or
application with respect thereto. The Company is not currently in receipt of
any notice of any violation of, and has no reason to believe that the Company's
operations are violating the rights of others with respect to any such matter,
and the Company has taken reasonable measures to protect its rights with
respect to any such matters as are proprietary to the Company.
(r) Litigation. Except as set forth in Schedule
5(r), there is no litigation, arbitration, governmental claim, investigation or
proceeding pending or threatened
12
<PAGE> 13
against the Company, at law or in equity, before any court, arbitration
tribunal or governmental agency. No such proceeding set forth in Schedule 5(r)
concerns the ownership or other rights with respect to the Shares. The Company
and the Shareholder know of no facts on which material claims may be hereafter
made against the Company. All claims and litigation against the Company are
fully covered by insurance, except as indicated on Schedule 5(r).
(s) Compliance with Laws, Regulations and Court
Orders. There is not outstanding or threatened any order, writ, injunction or
decree of any court, governmental agency or arbitration tribunal against or
affecting the Company, the Shareholder or the Shares. The Company is in
compliance with all applicable federal, state and local laws, regulations and
administrative orders, including without limitation those concerning the sale
of insurance in connection with the warranties provided for pursuant to the
Company's service and maintenance agreements, and have received no notices of
alleged violations thereof except as disclosed in Schedule 5(s) hereof.
Neither the Company, the Shareholder nor, to the knowledge of the Company and
the Shareholder, any licensed technician or other individual affiliated with
the Company has, during the past three (3) years, been the subject of any
inspection, investigation, survey, audit, monitoring or other form of review by
any governmental regulatory entity, trade association, professional review
organization, accrediting organization or certifying agency for the purpose of
any alleged improper activity on the part of such individual, nor has the
Company received any notice of deficiency in connection with its operation. No
governmental authorities are currently conducting proceedings against the
Company and no such investigation or proceeding is pending or being threatened.
(t) Certain Payments. Neither the Company nor
any Shareholder, director, officer, agent, or employee of the Company, or any
other person associated with or acting for or on behalf of the Company, has
directly or indirectly (i) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback or other payment to any person, private or public,
regardless of form, whether in money, property, or services (A) to obtain
favorable treatment in securing business, (B) to pay for favorable treatment
for business secured, (C) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any affiliate
of the Company, or (D) in violation of any law, or (ii) established or
maintained any fund or asset that has not been recorded in the books and
records of the Company.
(u) Consents and Approvals. Except as set forth
on Schedule 5(u), no consents, approvals, authorizations or orders of third
parties, including governmental authorities, are necessary for the
authorization, execution and performance by the Company of this Agreement.
(v) No Broker's Fees. The Company has no
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
13
<PAGE> 14
(w) Disclosure.
(i) No representation or warranty made
herein by the Company or the Shareholder, nor in any statement,
certificate or instrument to be furnished to SEI by the Company
pursuant to any Transaction Document, contains or will contain any
untrue statement of material fact or omits or will omit to state a
material fact necessary to make these statements contained herein and
therein not misleading.
(ii) There is no fact known to the
Company or the Shareholder that has specific application to the
Company or the Shareholder (other than general economic or industry
conditions) and that materially adversely affects the Shares, the
Assets or the business, prospects, financial condition, or results of
operations of the Company that has not been set forth in this
Agreement.
(x) Reliance on Representations. The Company and
the Shareholder understand and intend that SEI and its management will rely
upon the representations of the Company and the Shareholder made in this
Agreement, and they are entitled to rely upon each and all of the same without
further inquiry.
Section 6. Representations and Warranties of SEI. SEI hereby
represents and warrants to the Company as follows as of the date hereof and as
of the Closing Date:
(a) Corporate Organization. SEI is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, has all requisite corporate power and authority to
execute and deliver this Agreement and holds all licenses, permits and other
required authorizations from governmental authorities necessary to conduct its
business as it is now being conducted.
(b) Capitalization. As of the date hereof, SEI's
authorized capital stock consists of (i) 30,000,000 shares of Common Stock,
$.01 par value per share ("SEI Common Stock"), 11,821,722 of which are issued
and outstanding and (ii) 10,000,000 shares of Preferred Stock, $.01 par value
per share, none of which are issued and outstanding. All issued and
outstanding shares of SEI Common Stock have been duly and validly authorized,
issued, fully paid and nonassessable. No shareholder of SEI has any preemptive
rights with respect to the issuance of shares of SEI Common Stock.
(c) Authorization and Validity. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by all
necessary corporate action. This Agreement, when executed, will constitute the
legal, valid and binding obligation of SEI, enforceable against SEI in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
14
<PAGE> 15
(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 Company by SEI pursuant to any
Transaction Document, contains or will contain any untrue statement of material
fact or omits or will omit to state a material fact necessary to make these
statements contained herein and therein not misleading.
Section 7. Additional Covenants and Agreements.
(a) Access to Information. The Company shall
accord to SEI, its counsel, accountants and other representatives full access
throughout the period prior to the Closing to all of the properties, books,
records, contracts, commitments and records of the Company and furnish SEI
during such period with all such information concerning the business and
properties of the Company as SEI and its representatives reasonably may
request. Such parties shall also be allowed access, upon reasonable notice, to
consult with the officers, employees, accountants, counsel and agents of the
Company in connection with such investigation of the properties and business of
the Company. In addition, at all times prior to the Closing, SEI will afford
to the Company and its representatives access, upon reasonable notice, to all
of SEI's properties, books and records as the Company may reasonably request.
No such investigation shall diminish or otherwise affect any of the
representations, warranties, covenants or agreements of any party under the
Agreement.
15
<PAGE> 16
(b) Affirmative Covenants of the Company. During
the period from the date of this Agreement to the Closing Date, the Company
will (i) continue to operate its business in the usual, regular, and ordinary
course of business, consistent with past practices, (ii) obtain the written
approval of SEI prior to making any capital expenditure in excess of $25,000 in
the aggregate, (iii) maintain in effect adequate casualty, public liability,
professional malpractice and workers' compensation insurance coverage, (iv)
maintain the Assets in their present condition, (v) comply with all laws and
regulations of governmental agencies or authorities, including applicable tax
laws and regulations, (vi) operate its business in the manner necessary to
maintain its reputation and the goodwill of its customers, vendors, lessors and
others having business relations with the Company, and (vii) to keep in force
all licenses, permits and approvals necessary to the operation of its business
as now conducted.
(c) Negative Covenants of the Company. During
the period from the date of this Agreement to the Closing Date, the Company
will not, without the prior written consent of SEI, and unless otherwise
expressly permitted herein:
(i) enter into, renew, amend, breach or
terminate any contract or agreement to which it is a party other than
in the ordinary course of business;
(ii) increase the salary of or declare
or pay any bonus to any employee;
(iii) incur any additional debt obligation
or other obligation for borrowed money in excess of an aggregate of
$25,000 except in the ordinary course of business of the Company
consistent with past practices, or impose, or suffer the imposition,
on any Asset of the Company of any lien or permit any such lien to
exist;
(iv) issue, sell, repurchase, redeem, or
otherwise acquire or exchange, directly or indirectly, any Shares or
any securities convertible into any Shares, or declare or pay any
dividend or make any other distribution in respect of the Shares;
(v) purchase or acquire any of the
Assets, whether real or personal, tangible or intangible, or sell or
dispose of any of the Assets, whether real or personal, tangible or
intangible, except in the ordinary course of business and consistent
with past practices;
(vi) purchase any securities or make any
material investment, either by purchase of stock or other securities,
contributions to capital, asset transfers, or purchase of any assets,
in any entity, or otherwise acquire direct or indirect control over
any other entity;
(vii) except in the ordinary course of
business (and, even if in the ordinary course of business, then not in
an amount to exceed $25,000 in the
16
<PAGE> 17
aggregate), make or commit to make any capital expenditure, or enter
into any lease of capital equipment as lessee or lessor;
(viii) make any loan to any person or
increase the aggregate amount of any loan currently outstanding to any
person;
(ix) engage in any transaction other than
in the ordinary course of business and consistent with past practice;
(x) adopt any new employee benefit plan
or make any material change in or to any Benefit Plan other than any
such change that is required by law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax qualified
status of any such Benefit Plan;
(xi) commence any litigation other than
in accordance with past practice, settle any litigation involving any
liability of the Company for material money damages or restrictions
upon the operations of the Company;
(xii) fail to deliver to SEI any notice or
other information regarding pending or threatened litigation in
respect of it or its operations;
(xiii) take, fail to take, or permit any
action, the result of which would be to make any representation or
warranty of Section 5 untrue, or prevent the satisfaction of any
condition set forth in Sections 8 and 10;
(xiv) change or alter any method of
accounting; or
(xv) change any provision of its Articles
of Incorporation or Bylaws.
(d) Notice of Adverse Change. The Company will
advise SEI in writing of any material adverse change in the Assets, the
business, financial condition or prospects of the Company from the date of this
Agreement to the Closing Date.
(e) Best Efforts. The Company will use its best
efforts to take all action and to do all things necessary, proper or advisable
to consummate the transactions contemplated by this Agreement. The Company
will use its best efforts to secure all consents and approvals required to
carry out the transactions contemplated by this Agreement and to satisfy all
other conditions to the obligations of the Company and SEI hereunder.
(f) Licenses; Permits. The Company will
cooperate in all reasonable respects with SEI in its applications to obtain
such licenses and permits, if any, as may be necessary in order for SEI to
operate the business as it is currently operated.
17
<PAGE> 18
(g) No Solicitation of Other Offers. The
Shareholder and the Company, acting through any director, officer or other
agent (including any investment banker, attorney, accountant or other
representative retained by it), shall not solicit or encourage, including by
way of furnishing information, any inquiries or the making of any proposal
which may reasonably be expected to lead to the acquisition of any of the
Shares or a substantial portion of the Assets. The Company and the Shareholder
will not, prior to the Closing, enter into or conduct any discussions with any
other prospective purchaser of any or all of the Shares or the Assets regarding
such a purchase or enter into any agreement or negotiations with respect to the
disposition of any or all of the Shares or the Assets, regardless of the form
of the transaction, without the consent of SEI, other than in the ordinary
course of business. The Company and the Shareholder shall promptly advise SEI
in writing of any such inquiries, proposals or discussions received by the
Company or the Shareholder after the date hereof.
(h) Confidentiality and Public Announcements.
The Company and the Shareholder shall keep confidential all information
concerning the Combination or provided to it by SEI and, in the event of
termination of the Combination pursuant to Section 11, shall deliver to SEI all
documents and other materials previously delivered (and copies thereof)
concerning the transactions contemplated hereby. Neither the Company nor the
Shareholder nor any of their representatives shall make any public announcement
with respect to this Agreement without the prior written consent of SEI.
(i) Risk of Loss. The Company shall retain all
risk of condemnation, destruction, loss or damage due to fire or other casualty
from the date of this Agreement until the Closing. If the condemnation,
destruction, loss or damage is such that the operation of the Company is
materially interrupted or curtailed or any of the Assets are materially
affected, then SEI shall have the right to terminate this Agreement. If SEI
nonetheless elects to close, the Company shall remit all net condemnation
proceeds or third party insurance proceeds to SEI, and the cash to be delivered
pursuant to Section 2(a) shall be adjusted at the Closing to reflect such
condemnation, destruction, loss or damage to the extent that insurance or
condemnation proceeds are not sufficient to cover such destruction, loss or
damage.
(j) Subchapter S Matters. If the Company is an
"S" corporation, the Company shall prepare and file, at its expense, the short
period tax returns of the Company ending on the Closing Date. Such returns
shall be provided for SEI's prior review and approval, which approval shall not
be unreasonably withheld or delayed. The Company shall file as an "S"
corporation for that short period. SEI shall make available any information in
its or the Company's possession which is reasonably required by the Company to
complete such returns at no cost to the Company.
Section 8. Conditions to Each Party's Obligation to Effect the
Combination. The respective obligation of each party to effect the Combination
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
18
<PAGE> 19
(a) This Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable law and by the applicable regulations of any regulatory body.
(b) Any waiting period applicable to the
consummation of the Combination under the Hart- Scott-Rodino Antitrust
Improvements Act of 1976 shall have expired or been terminated.
(c) Neither of the parties hereto shall be
subject to any order or injunction of a court of competent jurisdiction which
prohibits the consummation of the transactions contemplated by this Agreement.
In the event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
(d) All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental commission,
board or other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or made,
except for filings in connection with the Combination and any other documents
required to be filed after the Closing Date and except where the failure to
have obtained or made any such consent, authorization, order, approval, filing
or registration would not have a material adverse effect on the business of SEI
and the Company (and their respective subsidiaries), taken as a whole,
following the Closing.
Section 9. Conditions to Obligation of the Company and the
Shareholder to Effect the Combination. The obligation of the Company and the
Shareholder to effect the Combination shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The
representations and warranties of SEI set forth herein in Section 6 above shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of such date.
(b) Performance; Document Delivery. SEI shall
have performed in all material respects, at or prior to the Closing Date, all
acts in accordance with its covenants set forth herein, including, but not
limited to, delivery to the Company of the following documents:
(i) The Purchase Price to be paid
pursuant to Section 2;
(ii) A good standing certificate
regarding SEI certified by the Secretary of State of the State of
Delaware dated within five business days prior to Closing;
(iii) A certificate dated as of the
Closing Date signed by a duly authorized officer of SEI certifying
that the representations and warranties of SEI set
19
<PAGE> 20
forth herein are true and correct in all material respects as of the
Closing Date and that SEI has fulfilled all of the conditions of this
Section 9;
(iv) Resolutions adopted by the Board of
Directors of SEI approving the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated
hereby, certified by the Secretary of SEI; and
(v) An incumbency certificate certifying
the identity of the officers of SEI.
(c) Opinion of Counsel. SEI shall have delivered
to the Company an opinion of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company, counsel to SEI, dated the Closing Date,
substantially in the form attached hereto as Schedule 9(c).
(d) No Injunction, Etc. No action proceeding,
investigation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the business or
operations of SEI, if such action, proceeding, investigation or legislation, in
the reasonable judgment of the Company or its counsel, would make it
inadvisable to consummate such transactions.
Section 10. Conditions to Obligation of SEI to Effect the
Transaction. The obligations of SEI to effect the Combination shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
(a) Due Diligence Review; Delivery of Schedules.
SEI shall have completed, and in its sole discretion be satisfied with the
results of, its due diligence review of the operations and financial condition
of the Company. The Company shall have delivered to SEI the Schedules called
for by this Agreement, and such Schedules shall be satisfactory to SEI in its
sole discretion.
(b) Representations and Warranties. The
representations and warranties of the Company and the Shareholder contained in
this Agreement, or any document or instrument delivered to SEI hereunder, shall
be true and correct in all material respects as of the Closing Date with the
same effect as though made on and as of such date.
(c) Performance; Document Delivery. The Company
shall have performed in all material respects, at or prior to the Closing Date,
all acts in accordance with their covenants herein, including, but not limited
to, delivery to SEI of the following documents:
20
<PAGE> 21
(i) A good standing certificate
regarding the Company certified by the Secretary of State of such
party's state of organization dated within five business days prior to
Closing;
(ii) A certificate dated as of the
Closing Date signed by the duly authorized officers of the Company
certifying that the representations and warranties of the Company set
forth herein are true and correct in all material respects as of the
Closing Date and that the Company has fulfilled all of the conditions
of this Section 10;
(iii) Resolutions of the Board of
Directors and the Shareholder of the Company and in form and substance
satisfactory to SEI approving the execution, delivery and performance
of this Agreement and the consummation of the transactions
contemplated hereby, certified by an appropriate officer of the
Company and the Shareholder;
(iv) An incumbency certificate certifying
the identity of the officers of the Company and any Shareholder that
is not a natural person;
(v) Certificates representing the Shares
being exchanged, together with accompanying stock transfer powers or
instruments of assignment, duly endorsed in blank;
(vi) Resignations of each of the officers
and directors of the Company effective as of the Closing Date;
(vii) Releases of the Shareholder and each
officer and director of the Company concerning any claim against the
Company other than current accrued wages and benefits;
(viii) All books and records of the
Company, including all corporate and other records, minute books,
stock record books, stock registers, books of accounts, contracts,
agreements and such other documents or certificates as shall be
reasonably requested by SEI; and
(ix) Evidence that all agreements or
arrangements, whether written or oral, among the Shareholder and/or
the Company that relate in any manner to the Shares have been
terminated.
(d) No Adverse Change. There shall not have been
any change between the date of the latest Financial Statements and the Closing
Date which has had or will have a material adverse effect on the business,
operations, financial condition, Assets or prospects of the Company, and a
certificate shall have been delivered to SEI to such effect signed by the
Shareholder and such executive officers of the Company as SEI may request.
21
<PAGE> 22
(e) Opinion of Counsel. SEI shall have been
furnished with a favorable opinion of counsel to the Company and the
Shareholder, dated the Closing Date, substantially in the form attached hereto
as Schedule 10(e).
(f) Consents and Approvals. The Company shall
have obtained all necessary consents and approvals, in form and substance
satisfactory to SEI, required under all leases and other material contracts
pertaining to the Assets or the business of the Company and satisfying any
approval or permit or licensing requirements for consummation of this
transaction and necessary to carry on the business of the Company as it is
currently being conducted.
(g) No Injunction, Etc. No action, proceeding,
investigation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
prohibit or obtain substantial damages in respect of, or which is related to or
arises out of, this Agreement or the consummation of the transactions
contemplated hereby, or which is related to or arises out of the business or
operations of the Company, if such action, proceeding, investigation or
legislation, in the reasonable judgment of SEI or its counsel, would make it
inadvisable to consummate such transactions.
(h) Employment Agreements. SEI and certain
employees of the Company shall have entered into employment agreements
substantially in the form attached hereto as Schedule 10(h).
(i) Escrow Agreements. SEI and the Shareholder
shall have entered into the Escrow Agreement pursuant to Section 2(b).
(j) 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.
(k) Environmental Audit. SEI shall have received
a report with respect to an environmental audit, the cost of which shall be
borne by the Company, of the Real Property owned by the Company, the contents
of which report shall be satisfactory to SEI in its sole discretion.
(l) Board Approval. This Agreement and the
Combination shall have been approved and authorized by the Board of Directors
of SEI.
Section 11. Termination.
(a) Means of Termination. This Agreement may
be terminated at any time prior to the Closing in the following ways:
22
<PAGE> 23
(i) by the mutual consent in writing of
the Company and SEI;
(ii) by SEI if there has been a material
violation or breach by the Company of any of the agreements,
representations or warranties contained in this Agreement which has
not been waived by SEI in writing, or if any of the conditions set
forth in Sections 8 and 10 hereof have not been satisfied within six
(6) months of the date hereof or have not been waived by SEI in
writing; or
(iii) by the Company if there has been a
material violation or breach by SEI of any of the agreements,
representations or warranties contained in this Agreement which has
not been waived by the Company in writing, or if any of the conditions
set forth in Sections 8 and 9 hereof have not been satisfied within
six (6) months of the date hereof or have not been waived by the
Company in writing.
(b) Effect of Termination. Except as provided
in Section 12(b) hereof, in the event this Agreement is terminated in
accordance with this Section 11, this Agreement shall become void and of no
further force or effect, except the obligations of each party to preserve the
confidentiality of documents, certificates and information furnished to such
party pursuant hereto and for any obligation or liability of any party based on
or arising from any breach or default by such party with respect to its
representations, warranties, covenants or agreements contained in the
Transaction Documents.
Section 12. Expenses and Remedies.
(a) 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 Combination, including its own legal, accounting and audit
fees.
(b) Remedies. The Company agrees that in
the event of a termination of this Agreement pursuant to Section 11, for a
period of six months from the date of such termination, neither the Company nor
any of its officers, directors, management employees, affiliated persons or
agents, or the Shareholder, will, directly or indirectly, (A) negotiate or
discuss with any other person or entity any transaction involving a merger of
the Company, or the sale of any shares in or assets of the Company (except for
sales of inventory in the ordinary course of business) or any other business
combination involving the Company, (B) reveal the terms of this Agreement to
any person or entity except for the purpose of carrying out the transactions
contemplated herein or (C) solicit, encourage, negotiate, discuss or accept any
offer, bid or proposal from any person or entity respecting any transaction
involving a merger of the Company, the sale of any shares in or assets of the
Company (except for sales of inventory in the ordinary course of business) or
any other business combination involving the Company.
23
<PAGE> 24
Section 13. Indemnification.
(a) Indemnification of SEI. The Shareholder
agrees to indemnify and hold harmless SEI, each officer, director, employee or
agent thereof, their respective controlling persons, and their respective
estates, successors, and assigns (each an "Indemnified Party"), from and
against any and all claims, losses, damages, liabilities and expenses
(including, without limitation, settlement costs and any legal or other
expenses for investigating or defending any actions or threatened actions) (the
"Losses") reasonably incurred by such Indemnified Party as a result of:
(i) the untruth, inaccuracy or breach of
any representation or warranty made by the Company or the Shareholder
in this Agreement or any other Transaction Document;
(ii) the nonfulfillment or breach of any
covenant, agreement or obligation of the Company or the Shareholder
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 with respect to any taxable
period(s) ending on or before the date of this Agreement for which
adequate provisions therefor have not been made through the Closing
Date, as reflected on the Company's books of account and in the
Company's financial statements as of the Closing Date; and the
amount(s) of any interest and/or penalties that may be assessed with
respect to said tax assessments. The amount(s) of any
indemnification(s) arising under this Agreement is to be computed net
of any and all tax benefits received by SEI as a result of the tax
assessment(s);
(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 interest in any of the Shares or seeking dissenters' or
appraisal rights or any other claim in respect to the Combination.
(b) Limitations on the Shareholder's Indemnity.
The Shareholder shall be obligated to indemnify and hold harmless SEI pursuant
to Section 13(a) only to the extent that the aggregate of all indemnifiable
Losses exceeds $25,000.
(c) Indemnification of the Shareholder. SEI
shall indemnify and hold harmless the Shareholder (the "Indemnified Party")
from and against any and all Losses reasonably incurred by such Indemnified
Party as a result of:
24
<PAGE> 25
(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 13. The notice
to the indemnifying party shall specify, if known, the amount or an estimate of
the amount of the liability arising therefrom. The Indemnified Party shall not
settle or compromise any such claim without the prior written consent of the
indemnifying party unless suit shall have been instituted against the
Indemnified Party and the indemnifying party shall have failed, within fifteen
(15) days after notice of institution of the suit, to take control of such suit
as provided in Section 13(e) below.
(e) Defense of Actions. In connection with any
claim giving rise to indemnity hereunder resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
indemnifying party, at its sole cost and expense, may, upon written notice to
the Indemnified Party, assume the defense of such claim or legal proceeding, to
the extent that the indemnifying party admits in writing its liability to the
Indemnified Party with respect to all material elements thereof. If the
indemnifying party assumes the defense of any such claim or legal proceeding,
the obligations of the indemnifying party hereunder as to such claim or legal
proceeding shall be limited to taking all steps necessary in the defense or
settlement thereof and to holding the Indemnified Party harmless from and
against any losses, damages, expenses, or liability caused by or arising out of
any settlement approved by the indemnifying party or any judgment in connection
with such claim or legal proceeding. Each Indemnified Party agrees that it
will cooperate with the indemnifying party in the defense of any such action,
the defense of which is assumed by the indemnifying party. Except with the
consent of the Indemnified Party, the indemnifying party shall not consent to
the entry of any judgment arising from any such claim or legal proceeding
which, in each case, does not include as an unconditional term thereof the
delivering by the claimant or the plaintiff to the Indemnified Party of a
release from all liability in respect thereof, unless the indemnifying party
has actually paid to the Indemnified Party the full amount of such judgment or
settlement. If the indemnifying party does not assume the defense of any claim
or litigation, any Indemnified Party may defend against such claim or
litigation in such manner as it may deem appropriate, including, but not
limited to, settling such claim or litigation, after giving notice of the same
to the indemnifying party, on such terms as the Indemnified Party may deem
appropriate. The indemnifying party will promptly reimburse the Indemnified
Party in accordance with the provisions hereof.
25
<PAGE> 26
(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 Shareholder or by the Shareholder to
SEI, as the case may be, or (ii) the escrowed cash pursuant to the Escrow
Agreement.
Section 14. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be personally delivered,
mailed by first-class registered or certified mail, postage prepaid, return
receipt requested or delivered by an overnight courier service, delivery charge
prepaid:
(a) If to the Company or the Shareholder, to such
address furnished to SEI or at such other address as may be furnished to SEI by
it in writing.
(b) If to SEI, to:
Service Experts, Inc.
P. O. Box 17102
Nashville, Tennessee 37217
Attention: Alan R. Sielbeck
with a copy to:
Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: J. Chase Cole, Esq.
or at such other address as may have been furnished to the Company by
SEI in writing.
Section 15. Miscellaneous.
(a) Entire Agreement. This Agreement and the
Schedules, certificates and other documents delivered pursuant hereto contain
and constitute the entire agreement and understanding between the Company and
SEI and supersede and cancel all prior agreements and understandings relating
to the subject matter hereof, whether written or oral, which shall remain in
effect. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except in writing signed by the parties hereto.
(b) Severability. Should any one or more of the
provisions of this Agreement or any agreement entered into pursuant hereto be
determined to be illegal or unenforceable, all other provisions of this
Agreement and such other agreements shall be given
26
<PAGE> 27
effect separately from the provision or provisions determined to be illegal or
unenforceable and shall not be affected thereby.
(c) Governing Law. This Agreement shall be
construed and enforced in accordance with the laws of the State of Tennessee
without regard to its principles of conflicts of laws.
(d) Further Assurances. Each party covenants
that at any time, and from time to time, after the Closing, it will execute
such additional instruments and take such actions as may be reasonably
requested by the other parties to confirm or perfect or otherwise to carry out
the intent and purposes of this Agreement.
(e) Waiver. Any failure on the part of any party
to comply with any of its obligations, agreements or conditions hereunder may
be waived by any other party to whom such compliance is owed. No waiver of any
provision of this Agreement shall be deemed, or shall constitute, a waiver of
any other provision, whether or not similar, nor shall any waiver constitute a
continuing waiver.
(f) Assignment. SEI may assign its rights under
this Agreement to any affiliated entity, but otherwise this Agreement shall not
be assignable by any of the parties hereto without the written consent of all
other parties.
(g) Binding Effect. All of the terms of this
Agreement, whether so expressed or not, shall be binding upon the respective
personal representatives, successors and assigns of the parties hereto and
shall inure to the benefit of and be enforceable by the respective personal
representatives, successors and assigns of the parties hereto. This Agreement
shall survive the Closing and not be merged therein.
(h) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Counterparts. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(j) Survival of Representations and Warranties.
The representations and warranties of the parties contained in this Agreement
or any other Transaction Document shall survive the Closing and shall not be
extinguished thereby notwithstanding any investigation or other examination by
any party.
(k) Construction of Terms. The language used in
the Agreement shall be construed, in all cases, according to its fair meaning,
and not for or against either party hereto. The parties acknowledge that each
party has reviewed this Agreement and that normal rules of construction to the
effect that any ambiguities are to be resolved against the drafting
27
<PAGE> 28
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.
28
<PAGE> 29
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and date first above written.
SERVICE EXPERTS, INC.
By: /s/ Alan R. Sielbeck
-----------------------------------------
Title: Chief Executive Officer
ROLAND J. DOWN, INC.
By: /s/ Roland J. Down
-----------------------------------------
Title: President
SHAREHOLDER
/s/ Roland J. Down
-----------------------------------------
Roland J. Down
29
<PAGE> 30
LIST OF SCHEDULES TO BE PROVIDED BY THE COMPANY
Schedule 4(a) Title to the Shares
Schedule 4(e) Interested Transactions
Schedule 5(a) Jurisdictions Where Qualified
Schedule 5(b) Capitalization
Schedule 5(e) Predecessor Companies; Disposition of Assets
Schedule 5(f) Financial Statements
Schedule 5(g) Accounts Receivable and Payable
Schedule 5(h) Absence of Certain Changes
Schedule 5(i)(i) Ownership of Properties
Schedule 5(i)(ii) Exceptions to Ownership of Properties
Schedule 5(k) Insurance
Schedule 5(l)(iv) Environmental Conditions
Schedule 5(m) Contracts and Commitments
Schedule 5(n) Liabilities
Schedule 5(o) Employees and Labor Matters
Schedule 5(p) Employee Benefit Plans and Agreements
Schedule 5(q) Trademarks, Trade Names, Etc.
Schedule 5(r) Litigation
Schedule 5(s) Compliance with Laws, Regulations and Court Orders
Schedule 5(u) Consents and Approvals
Schedule 10(e) Form of Opinion of Counsel to the Company and the Shareholder
30
<PAGE> 31
LIST OF SCHEDULES TO BE PROVIDED BY SEI
Schedule 2(b) Form of Escrow Agreement
Schedule 9(c) Form of Opinion of Waller Lansden Dortch &
Davis, A Professional Limited Liability
Company
Schedule 10(h) Form of Employment Agreement
31
