<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENFINITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 1711 59-3475197
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
400 LAKE RIDGE DRIVE
SMYRNA, GEORGIA 30082
(770) 444-3355
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RODNEY C. GILBERT
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ENFINITY CORPORATION
400 LAKE RIDGE DRIVE
SMYRNA, GEORGIA 30082
(770) 444-3355
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CHRISTOPHER T. JENSEN, ESQ. NEIL GOLD, ESQ.
MORGAN, LEWIS & BOCKIUS LLP FULBRIGHT & JAWORSKI L.L.P.
101 PARK AVENUE 666 FIFTH AVENUE
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10103
(212) 309-6000 (212) 318-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value............. 9,200,000 shares $14.50 $133,400,000 $39,353.00
</TABLE>
(1) Includes 1,200,000 shares to be sold upon exercise of the Underwriters'
over-allotment option. See 'Underwriting.'
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 14, 1998
8,000,000 SHARES
ENFINITY CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Enfinity
Corporation (the 'Company').
Prior to this Offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price of the Common Stock will be between $ and $ per share. See
'Underwriting' for a discussion of the factors to be considered in determining
the initial public offering price. The Company will apply for listing of the
Common Stock on The New York Stock Exchange under the symbol 'BTU.'
SEE 'RISK FACTORS' COMMENCING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
Per Share...................................................... $ $ $
Total(3)....................................................... $ $ $
</TABLE>
(1) See 'Underwriting' for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 1,200,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount and Proceeds to Company
will be $ , $ and $ , respectively. See
'Underwriting.'
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
------------------------
NationsBanc Montgomery Securities LLC
Lehman Brothers
Raymond James & Associates, Inc.
, 1998
<PAGE>
<PAGE>
[DESCRIPTION OF PICTURES/GRAPHICS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
2
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
Simultaneously with and as a condition to the closing of this Offering,
Enfinity Corporation will acquire, in separate transactions (the 'Mergers') in
exchange for cash and shares of its Common Stock, all of the common stock and
ownership interests of eight energy and indoor environmental systems and
services companies (each, a 'Founding Company' and, collectively, the 'Founding
Companies'). Unless otherwise indicated, all references to the 'Company' herein
include the Founding Companies, and references to 'Enfinity' mean Enfinity
Corporation prior to the consummation of the Mergers. For more information about
the Mergers, see 'Certain Transactions.'
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto appearing elsewhere in this Prospectus. Unless otherwise
indicated, all share, per share and financial information in this Prospectus:
(i) has been adjusted to give effect to the Mergers; (ii) assumes no exercise of
the Underwriters' over-allotment option; and (iii) gives effect to an
approximate 36,804.93-for-1 stock split to be effected in the form of a stock
dividend prior to the consummation of this Offering. See 'Description of Capital
Stock.'
THE COMPANY
Enfinity was formed by the Founding Companies to provide energy and indoor
environmental systems and services to commercial, industrial and institutional
clients. The Company provides a broad range of services throughout the life
cycle of a client's energy and indoor environmental systems, including: (i)
maintenance, repair and replacement; (ii) design, engineering and installation;
and (iii) on-site and off-site management of building systems, including control
and monitoring systems.
Seven of the eight Founding Companies have worked together in industry peer
groups for over 10 years. All of the Founding Companies are 'best-of-class'
service providers with specialized and complementary expertise and have been
recognized by industry organizations for their high quality service and
innovative client solutions. Six of the eight Founding Companies have been named
'Commercial Contractor of the Year,' an award presented annually by Contracting
Business magazine to the most progressive and professional organization in the
commercial heating, ventilation and air-conditioning ('HVAC') business. The
Company has established strategic partnerships with several utilities and other
energy providers as a means to provide innovative and cost effective energy and
indoor environmental solutions to commercial utility consumers. The Founding
Companies have experienced substantial growth, with historical combined revenues
increasing from $245.6 million for fiscal year 1995 to $364.8 million for fiscal
year 1997, representing a compound annual growth rate of 21.9%.
The commercial, industrial and institutional HVAC and related services
industry is large, growing and highly fragmented. In 1996, over 10,000 companies
provided over $35 billion in commercial, industrial and institutional HVAC
services. Factors fueling the growth of the industry include: (i) an increasing
focus on air quality and internal environmental control in a growing number of
sealed commercial buildings; (ii) the aging of the installed base of energy and
indoor environmental systems, which has increased the demand for maintenance,
repair and replacement services; (iii) the increasing automation, sophistication
and complexity of energy and indoor environmental systems; (iv) government
restrictions on the use of refrigerants commonly used in older energy and indoor
environmental systems; (v) a desire by companies to outsource their energy and
indoor environmental systems services as they focus on their core competencies;
and (vi) an increasing focus by companies on managing costs and the ability to
achieve energy savings by replacing less efficient systems.
An important factor affecting the energy and environmental services
industry is the deregulation of the U.S. gas and electric utility industries. As
these industries become further deregulated, the Company anticipates that
utilities and other energy providers will continue to establish strategic
partnerships with providers of energy and indoor environmental systems and
services in order to attract utility customers in an increasingly competitive
market. These partnerships are offering customers a broad range of services and
utilities on a variable cost per unit basis without the need for customers to
make significant
3
<PAGE>
<PAGE>
capital expenditures on energy and indoor environmental systems. The Company
believes that these strategic partnerships will decrease energy costs and
improve marketing and customer service, resulting in increased demand for energy
and indoor environmental systems and services.
The Company's goal is to create a leading national provider of energy and
indoor environmental systems and services for commercial, industrial and
institutional clients. In order to achieve this goal, the Company has a focused
business strategy based upon the following key principles: (i) creating a single
source provider of energy and indoor environmental systems and services; (ii)
leveraging Founding Company engineering and technical expertise; (iii) focusing
on high quality client service; (iv) attracting, training and retaining highly
qualified technicians and engineers; and (v) operating with a decentralized
management strategy.
INTERNAL GROWTH STRATEGY. While the Company intends to acquire additional
energy and indoor environmental systems service companies, strong internal
growth remains the foundation of the Company's growth strategy. The Company
believes it will be able to increase its revenues from existing clients by
taking advantage of cross-selling opportunities among the Founding Companies and
other acquired companies. Through interaction at industry peer group meetings
and their reputations as 'best-of-class' service providers, certain of the
Founding Companies have already begun to leverage their client relationships by
recommending each other for significant business opportunities. The Company also
believes that it can produce strong internal growth by expanding market coverage
to provide energy and environmental systems and services on a regional and
national basis and achieving operating efficiencies through best practices and
economies of scale.
STRATEGIC PARTNERSHIPS. The Company will seek to form additional strategic
relationships with utilities and other energy providers to satisfy the full
range of a client's energy and indoor environmental systems needs. For example,
the Company and its strategic partners may: (i) provide a client with gas,
electrical power, cooled air or water, heat or lighting; (ii) design, install
and maintain the client's energy and indoor environmental systems; (iii) operate
central energy plants; (iv) provide financing for the design, engineering and
installation of new energy and environmental systems; and (v) monitor the indoor
air quality of the client's facility. The Company anticipates that these
partnerships will result in lower energy costs and greater client satisfaction
as a client's full range of energy and indoor environmental service needs are
provided and paid for through a single source. By creating an attractive
alternative to the traditional means of satisfying a client's needs, the
Company believes that strategic partnerships will provide the Company with an
advantage over many of its competitors, additional business opportunities and
increased revenues.
GROWTH THROUGH ACQUISITIONS. The Company intends to capitalize on the
highly fragmented nature of the energy and indoor environmental systems and
services industry by implementing a strategic acquisition program following this
Offering. The Company will seek to acquire companies that are 'best-of-class'
local or regional providers of energy and indoor environmental systems and
services. Together with the Founding Companies, such acquisition targets will
serve as platforms for further growth and consolidation and will have the client
base, technical skills and infrastructure necessary to be a core business into
which other companies can be consolidated. The Company also will attempt to
leverage the existing infrastructure by pursuing 'tuck-in' acquisitions of
smaller companies whose operations can be integrated into a platform company. In
addition, the Company will selectively seek to acquire other well-established
businesses that provide services complementary to those provided by the Company
in order to expand its market penetration and range of services offered.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............................ 8,000,000 shares
Common Stock to be outstanding after this Offering............. 17,356,377 shares (1)
Use of proceeds................................................ To pay the cash portion of the purchase price
for the Founding Companies, to repay certain
indebtedness of the Founding Companies and for
working capital and other general corporate
purposes, including future acquisitions. See
'Use of Proceeds.'
Proposed New York Stock Exchange symbol........................ BTU
</TABLE>
- ------------
(1) Includes 8,243,970 shares of Common Stock to be issued in connection with
the Mergers, but excludes 2,343,110 shares of Common Stock reserved for
issuance pursuant to the Company's 1998 Long-Term Incentive Plan, of which
options to purchase shares will be granted by the Company concurrently
with the Mergers and this Offering. See 'Management -- 1998 Long-Term
Incentive Plan,' 'Certain Transactions -- Organization of the Company' and
'Shares Eligible for Future Sale.'
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See 'Risk
Factors.'
5
<PAGE>
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Enfinity will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Brandt Mechanical Services, Inc. ('Brandt'), one of the
Founding Companies, has been identified as the accounting acquiror. The
following unaudited summary pro forma combined financial data present certain
data for the Company, as adjusted for: (i) the consummation of the Mergers; (ii)
certain pro forma adjustments to the historical financial statements; and (iii)
the consummation of this Offering and the application of the net proceeds
therefrom. The Summary Pro Forma Combined Statement of Operations Data and
Summary Pro Forma Combined Balance Sheet Data should be read in conjunction with
the Unaudited Pro Forma Combined Financial Statements and the notes thereto and
the historical financial statements of the Founding Companies and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
-----------------
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................................................................... $ 364,767
Cost of revenues.............................................................................. 293,749
-----------------
Gross profit............................................................................. 71,018
Selling, general and administrative expenses.................................................. 49,194
Amortization of goodwill, net................................................................. 2,200
-----------------
Income from operations................................................................... 19,624
Other expense, net............................................................................ 821
-----------------
Income before provision for income taxes...................................................... 18,803
Provision for income taxes............................................................... 8,401
-----------------
Net income.................................................................................... $ 10,402
-----------------
-----------------
Net income per share, basic and diluted....................................................... $ 0.60
-----------------
-----------------
Shares used in computing pro forma
basic net income per share.................................................................. 17,276,056
Shares used in computing pro forma
diluted net income per share................................................................ 17,321,377
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
PRO FORMA AS
COMBINED ADJUSTED
--------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................ $(61,253) $
Total assets............................................................................. 244,786
Total long-term debt, net of current portion............................................. 13,364
Stockholders' equity..................................................................... 57,790
</TABLE>
See the footnotes to 'Selected Financial Data' on page 20 for further
information about the assumptions used in the above data.
6
<PAGE>
<PAGE>
SUMMARY INDIVIDUAL FOUNDING COMPANY FINANCIAL DATA
(IN THOUSANDS)
The following table presents summary operating data for each of the
Founding Companies (see 'The Company' for the complete names of each Founding
Company) on an historical basis for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1)(2)
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
BRANDT(3):
Revenues.................................................................... $15,869 $38,723 $50,435
Cost of revenues............................................................ 13,170 31,932 42,032
------- ------- -------
Gross profit................................................................ 2,699 6,791 8,403
Selling, general and administrative expenses................................ 2,191 6,128 4,651
------- ------- -------
Income from operations...................................................... $ 508 $ 663 $ 3,752
------- ------- -------
------- ------- -------
AIR SYSTEMS:
Revenues.................................................................... $37,463 $55,528 $90,969
Cost of revenues............................................................ 29,527 44,098 75,149
------- ------- -------
Gross profit................................................................ 7,936 11,430 15,820
Selling, general and administrative expenses................................ 6,449 8,232 11,370
------- ------- -------
Income from operations...................................................... $ 1,487 $ 3,198 $ 4,450
------- ------- -------
------- ------- -------
ENERGY SYSTEMS:
Revenues.................................................................... $44,177 $48,069 $54,228
Cost of revenues............................................................ 36,498 40,299 45,893
------- ------- -------
Gross profit................................................................ 7,679 7,770 8,335
Selling, general and administrative expenses................................ 6,537 6,948 6,869
------- ------- -------
Income from operations...................................................... $ 1,142 $ 822 $ 1,466
------- ------- -------
------- ------- -------
NEMSI:
Revenues.................................................................... $22,467 $30,457 $39,357
Cost of revenues............................................................ 17,129 23,407 31,217
------- ------- -------
Gross profit................................................................ 5,338 7,050 8,140
Selling, general and administrative expenses................................ 4,617 5,448 7,297
------- ------- -------
Income from operations...................................................... $ 721 $ 1,602 $ 843
------- ------- -------
------- ------- -------
LEE:
Revenues.................................................................... $35,475 $34,639 $39,681
Cost of revenues............................................................ 28,154 26,541 30,316
------- ------- -------
Gross profit................................................................ 7,321 8,098 9,365
Selling, general and administrative expenses................................ 6,006 6,663 7,325
------- ------- -------
Income from operations...................................................... $ 1,315 $ 1,435 $ 2,040
------- ------- -------
------- ------- -------
HILL YORK:
Revenues.................................................................... $28,667 $31,430 $34,170
Cost of revenues............................................................ 22,526 24,121 26,551
------- ------- -------
Gross profit................................................................ 6,141 7,309 7,619
Selling, general and administrative expenses................................ 5,758 6,992 7,089
------- ------- -------
Income from operations...................................................... $ 383 $ 317 $ 530
------- ------- -------
------- ------- -------
</TABLE>
(table continued on next page)
7
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED(1)(2)
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
MECHANICAL SERVICES:
Revenues.................................................................... $24,938 $28,549 $28,279
Cost of revenues............................................................ 21,884 25,121 24,511
------- ------- -------
Gross profit................................................................ 3,054 3,428 3,768
Selling, general and administrative expenses................................ 2,053 2,298 2,530
------- ------- -------
Income from operations...................................................... $ 1,001 $ 1,130 $ 1,238
------- ------- -------
------- ------- -------
AIRCOND:
Revenues.................................................................... $25,225 $26,830 $26,935
Cost of revenues............................................................ 17,174 17,284 17,509
------- ------- -------
Gross profit................................................................ 8,051 9,546 9,426
Selling, general and administrative expenses................................ 6,273 7,487 7,731
------- ------- -------
Income from operations...................................................... $ 1,778 $ 2,059 $ 1,695
------- ------- -------
------- ------- -------
</TABLE>
- ------------
(1) The fiscal years presented are as follows: Brandt, Energy Systems, NEMSI and
Lee -- the fiscal years ended December 31, 1995, 1996 and 1997; Air
Systems -- the fiscal years ended February 29, 1996 and February 28, 1997
and 1998; Hill York -- the fiscal years ended March 31, 1996 and 1997 and
the fiscal year ended December 31, 1997; Mechanical Services -- the fiscal
years ended March 31, 1996 and 1997 and the fiscal year ended December 31,
1997; and Aircond -- the fiscal years ended September 30, 1995, 1996 and
1997.
(2) Selling, general and administrative expenses for the Founding Companies for
each of the fiscal years (as defined above) in the three-year periods
presented do not include reductions in compensation and benefits to certain
of the stockholders of the Founding Companies to which they have agreed
prospectively in the employment agreements to be entered into upon the
consummation of this Offering (the 'Compensation Differential') as indicated
below.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Brandt........................................................... $ 404 $2,777 $ 353
Air Systems...................................................... 213 1,223 1,407
Energy Systems................................................... 294 268 283
NEMSI............................................................ 512 388 590
Lee.............................................................. 1,349 1,226 1,026
Hill York........................................................ 577 1,010 968
Mechanical Services.............................................. 170 293 312
Aircond.......................................................... 414 437 1,132
------ ------ ------
Total....................................................... $3,933 $7,622 $6,071
------ ------ ------
------ ------ ------
</TABLE>
(3) In May 1995, management of Brandt purchased all issued and outstanding
common stock from Brandt's former parent. Accordingly, financial information
is presented for periods subsequent to the date of this purchase. The 1995
results reflect the period from May 25 to December 31, 1995.
8
<PAGE>
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information in this
Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Common Stock.
ABSENCE OF COMBINED OPERATING HISTORY; RISKS OF INTEGRATION
Enfinity was founded in 1997 and has conducted no operations and generated
no revenues to date. Enfinity has entered into agreements to acquire the
Founding Companies simultaneously with and as a condition to the consummation of
this Offering. Prior to the consummation of this Offering, the Founding
Companies have operated as independent entities. Currently, the Company has no
centralized financial reporting system and initially will rely on the existing
reporting systems of the Founding Companies. There can be no assurance that the
Company will be able to successfully integrate the operations of these
businesses or institute the necessary Company-wide systems and procedures to
successfully manage the combined enterprise on a profitable basis. The Company's
management group has been assembled only recently, and there can be no assurance
that the management group will be able to effectively manage the combined entity
or effectively implement the Company's internal growth strategy and acquisition
program. The combined financial statements of the Founding Companies cover
periods when the Founding Companies and Enfinity were not under common control
or management and, therefore, may not be indicative of the Company's future
financial or operating results. The inability of the Company to successfully
integrate the Founding Companies would have a material adverse effect on the
Company's business, financial condition and results of operations. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business -- Business Strategy.'
FACTORS AFFECTING INTERNAL GROWTH AND PROFITABILITY
The Founding Companies have experienced revenue and earnings growth on a
pro forma combined basis over the past few years. There can be no assurance that
the Founding Companies will continue to experience internal growth comparable to
these levels, or at all. Factors affecting the ability of the Company to
continue to experience internal growth and profitability include, but are not
limited to, demand for the Company's services and the Company's ability to
expand the scope of the services offered, maintain relationships with
significant clients, recruit and retain qualified technicians and engineers,
gain access to capital, avoid cost overruns on fixed-price contracts and
cross-sell services of the Founding Companies. See 'Business -- Growth
Strategy.'
POSSIBLE EFFECTS OF DEREGULATION OF THE U.S. GAS AND ELECTRIC UTILITY INDUSTRIES
The U.S. gas and electric utility industries have recently begun to be
deregulated on a state-by-state basis. As these industries become further
deregulated, utility companies are seeking entry into the energy and indoor
environmental systems and services industry as a method of securing utility
customers in an increasingly competitive market. Such utilities are likely to
increasingly compete with the Company for clients, strategic partners,
acquisition targets and qualified technicians and engineers. Such utility
companies may enter into partnerships or joint ventures with energy and indoor
environmental systems and services companies. If the Company is not selected as
a partner by utility companies, there could be a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, as utility companies may be better capitalized, have greater name
recognition and be able to provide services at a lower cost than the Company,
the Company may encounter a significant increase in competition in its efforts
to achieve its internal growth and acquisition objectives. See
'Business -- Competition.'
RISKS ASSOCIATED WITH ACQUISITION STRATEGY
The Company intends to increase its revenues, expand the markets it serves
and increase its service offerings in part through the acquisition of additional
energy and indoor environmental systems and service providers. There can be no
assurance that the Company will be able to identify, acquire or
9
<PAGE>
<PAGE>
profitably manage additional businesses or successfully integrate acquired
businesses into the Company without substantial costs, delays or other
operational or financial problems. Increased competition for acquisition
candidates may develop, in which event there may be fewer acquisition
opportunities available to the Company as well as escalating acquisition prices.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of management's
attention, failure to retain key acquired personnel, risks associated with
unanticipated events or liabilities and amortization of acquired intangible
assets, some or all of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Client
dissatisfaction or performance problems at a single acquired company could have
an adverse effect on the reputation of the Company and render ineffective any
national sales and marketing initiatives undertaken by the Company. There can be
no assurance that potential acquisition targets will be receptive to the
Company's acquisition program. See 'Business -- Growth Strategy.'
RISKS RELATED TO ACQUISITION FINANCING
The Company intends to finance future acquisitions by using shares of its
Common Stock for a substantial portion of the consideration to be paid. In the
event that its Common Stock does not maintain a sufficient market value, or
potential acquisition candidates are otherwise unwilling to accept Common Stock
as part of the consideration for the sale of their businesses, the Company may
be required to utilize more of its cash resources, if available, in order to
initiate and maintain its acquisition program. If the Company has insufficient
cash resources, its growth could be limited unless it is able to obtain
additional capital through debt or equity financings. The Company is currently
seeking bank commitments for revolving credit facilities of up to $ million.
No commitment has been obtained, and there can be no assurance that the Company
will be able to obtain any revolving credit facility or other financing it may
need on terms the Company deems acceptable. If the Company is unable to obtain
financing sufficient for all of its desired acquisitions, it may be unable to
implement fully its acquisition strategy. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
MATERIAL AMOUNT OF INTANGIBLE ASSETS
Approximately $113.2 million, or 46.1%, of the Company's as adjusted pro
forma combined total assets as of December 31, 1997 represent goodwill resulting
from the Mergers. Goodwill is an intangible asset that represents the excess of
purchase price over the fair value of the assets acquired. The Company will
amortize this goodwill from the Mergers over a period of 40 years. The amount
amortized, however, will not give rise to a deduction for tax purposes. In
addition, the Company will be required to amortize the goodwill, if any, from
any future acquisitions accounted for on the purchase method of accounting.
Under accounting rules, the Company is required to periodically evaluate
goodwill for impairment by reviewing the cash flows of acquired companies and
comparing such amounts to the carrying value of the associated goodwill. If
goodwill is impaired, the Company would be required to adjust goodwill and incur
a charge to its operating results. A reduction in operating results resulting
from the amortization or write-down of goodwill could have an adverse impact
upon the market price of the Common Stock.
MANAGEMENT OF GROWTH
The Company expects to grow internally and through strategic partnerships
and acquisitions. The Company expects to expend significant time and effort in
expanding existing businesses, in consummating strategic partnerships and in
identifying, completing and integrating acquisitions. There can be no assurance
that the Company's systems, procedures and controls will be adequate to support
the Company's operations as they expand. Any future growth also will impose
significant added responsibilities on members of senior management, including
the need to identify, recruit and integrate new senior level managers and
executives. There can be no assurance that such additional management will be
identified and retained by the Company. To the extent that the Company is unable
to manage its growth efficiently and effectively, or is unable to attract and
retain additional qualified management, the
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Company's business, financial condition and results of operations could be
materially adversely affected. See 'Business -- Growth Strategy' and
'Management.'
EXPOSURE TO DOWNTURNS IN NEW CONSTRUCTION; GENERAL ECONOMIC CONDITIONS
A substantial portion of the Company's business involves installation of
energy and indoor environmental systems in newly constructed commercial and
industrial buildings. The demand for new installation services is affected by
fluctuations in the amount of new construction of commercial and industrial
buildings in the markets in which the Company operates. Factors such as local
economic conditions and changes in interest rates can affect the amount of new
construction. Downturns in the levels of new construction could have a material
adverse effect on the Company's business, financial condition and results of
operations. General economic conditions can also cause fluctuations in demand
for the Company's services.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's operations are subject to seasonal variations. In certain
parts of the United States, the demand for new installations of HVAC and other
energy and indoor environmental systems can be substantially lower during the
winter months. Maintenance, repair and replacement services are subject to
seasonality as well. The Company expects that its revenues and operating results
generally will be lower in the first and fourth calendar quarters. The energy
and indoor environmental systems and services industry is also subject to
fluctuations caused by periods of inclement weather. Prolonged extreme climate
or weather conditions may cause unpredictable fluctuations in operating results.
See 'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
AVAILABILITY OF QUALIFIED ENGINEERS AND TECHNICIANS
The timely provision by the Company of high quality energy and indoor
environmental systems and services requires an adequate supply of engineers and
technicians. Accordingly, the Company's ability to increase its productivity and
profitability will be limited by its ability to employ, train and retain the
skilled engineers and technicians necessary to meet the Company's construction
and service requirements. From time to time, there are shortages of qualified
engineers and technicians, and there can be no assurance that the Company will
be able to maintain an adequate skilled labor force necessary to operate
efficiently, that the Company's labor expenses will not increase as a result of
a shortage in the supply of skilled engineers and technicians or that the
Company will not have to curtail its planned internal growth as a result of
skilled labor shortages. See 'Business -- Recruiting, Training and Retention'
and 'Business -- Employees.'
LABOR RELATIONS
At March 31, 1998, the Company had approximately 3,200 employees, of whom
approximately 1,600 were members of labor unions. Five of the eight Founding
Companies have collective bargaining agreements, which agreements expire at
various times through April 2002. The Company's inability to negotiate
acceptable contracts with these unions could result in strikes or other work
stoppages by the affected workers and increased operating costs as a result of
higher wages or benefits paid to union members. If the unionized employees were
to engage in strikes or other work stoppages, or other employees were to become
unionized, the Company could experience a significant disruption of its
operations and higher ongoing labor costs, which could have an adverse effect on
the Company's business, financial condition and results of operations. In
addition, the use by some Founding Companies of unionized employees and by other
Founding Companies of non-unionized employees may make joint ventures among the
Founding Companies more difficult or may lead to conflicts between union and
non-union employees. See 'Business -- Employees.'
COMPETITION
The energy and indoor environmental systems and services industry is highly
competitive. Many of the Company's competitors are relatively small,
owner-operated private companies. The Company also competes with large HVAC
equipment manufacturers, such as Carrier Corporation, Trane Air
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Conditioning Company and Honeywell Inc. In addition, the Company is increasingly
encountering competition from unregulated affiliates of public utilities which
generally are better capitalized, have greater name recognition and may be able
to provide services at a lower cost. The energy and indoor environmental systems
and services industry is currently undergoing rapid consolidation on both a
national and a regional level by other companies that have acquisition
objectives similar to the Company's objectives. These companies
and other consolidators may have greater financial resources than the Company to
finance acquisition and internal growth opportunities and might be willing to
pay higher prices than the Company for the same acquisition opportunities.
Consequently, the Company may encounter significant competition in its efforts
to achieve its internal growth and acquisition objectives. See
'Business -- Competition.'
TERMINABILITY OF CONTRACTS; CLIENT CONCENTRATION
A significant percentage of the Company's revenues is derived from
maintenance, repair and replacement services provided pursuant to service
agreements or in response to service calls. The Company's service agreements are
typically terminable by either party upon 30 to 60 days' notice and there can be
no assurance that existing clients will continue to use the Company's services
at historical levels, if at all. Further, a relatively small number of clients
accounts for a significant portion of the Company's revenues. For the year ended
December 31, 1997, one client, Devcon, accounted for approximately 12.5% of the
Company's revenues and 10 clients accounted for approximately 28.6% of the
Company's revenues. There can be no assurance that these clients will continue
to engage the Company for additional projects or do so at the same revenue
levels or that the Company will be able to obtain additional clients as large
projects are completed. See 'Business -- Clients.'
OPERATING HAZARDS
A significant portion of the Company's business consists of the assembly
and installation of energy and indoor environmental systems. This process can
cause personal injury and loss of life, severe damage to or destruction of
property and equipment and environmental damage, and may result in suspension of
operations of all or part of the facility being serviced. While the Company
maintains insurance coverage in the amounts and against the risks that it
believes are in accordance with industry practice, no assurance can be given
that this insurance will be adequate to cover all losses or liabilities the
Company may incur in its operations or that the Company will be able to maintain
insurance of the types or at levels it deems necessary or adequate or at rates
it considers reasonable.
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of its
executive officers and the senior management of the Founding Companies.
Furthermore, the Company will likely be dependent on the senior management of
any businesses acquired in the future. If any of these persons becomes unable to
continue in his or her role with the Company, or if the Company is unable to
attract and retain other qualified employees, the Company's business, financial
condition and results of operations could be materially and adversely affected.
Although the Company or an individual Founding Company will enter into an
employment agreement with at least one member of senior management of each of
the Founding Companies which will include confidentiality and non-compete
provisions, there can be no assurance that any individual will continue in his
or her present capacity with the Company or such Founding Company for any
particular period of time.
RISKS OF YEAR 2000 NONCOMPLIANCE
A significant percentage of the software that runs most of the computers
worldwide relies on two-digit codes to reflect the last two digits of a year in
performing computations and decision-making functions. Commencing on January 1,
2000, these computer programs may fail due to the inability to interpret date
codes properly, for example, misinterpreting '00' as the year 1900 rather than
2000. Certain of the Founding Companies' computer programs are currently
partially year 2000 noncompliant. The costs of updating such programs are not
expected to be material, but there can be no
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assurance that such conversion programs will be successful at the expected cost.
The Company utilizes in its internal operations a number of computer software
programs, including programs used to manage the Company's financial, accounting,
sales and marketing activities. The inability of such programs to interpret
properly data relating to the year 2000 and beyond could have a material adverse
effect on the Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION
Energy and indoor environmental systems are subject to various
environmental statutes and regulations, including the Clean Air Act, as amended
(the 'Clean Air Act') and those regulating the production, servicing and
disposal of certain ozone-depleting refrigerants used in such systems. There can
be no assurance that the regulatory environment in which the Company operates
will not change significantly in the future. Various federal, state and local
laws and regulations impose licensing standards on technicians who install and
service energy and indoor environmental systems. The Company's failure to comply
with these laws and regulations could subject it to substantial fines and the
loss of its licenses. See 'Business -- Governmental Regulation and Environmental
Matters.'
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Mergers and this Offering, the executive
officers and directors of the Company, consultants to Enfinity and the former
stockholders of the Founding Companies will beneficially own 53.9% of the
outstanding shares of Common Stock (50.4% if the Underwriters' over-allotment
option is exercised in full). These persons, if acting in concert, will be able
to continue to exercise control over the Company's affairs, to elect the entire
Board of Directors and to control the disposition of any matter submitted to a
vote of stockholders. See 'Principal Stockholders.'
SUBSTANTIAL PROCEEDS OF OFFERING PAYABLE TO AFFILIATES
Approximately $ million, or approximately %, of the net proceeds of
this Offering will be paid as the cash portion of the purchase price for the
Founding Companies, approximately $ million of which will be paid either to
stockholders of the Founding Companies who will become directors, officers, key
employees or holders of more than 5% of the Common Stock or to trusts for which
they act as trustees. Certain of the Founding Companies have incurred an
aggregate of $ million of indebtedness that is personally guaranteed by their
principal stockholders and will be repaid from the net proceeds of this
Offering.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON
STOCK
The market price of the Common Stock may be adversely affected by the sale,
or availability for sale, of substantial amounts of the Common Stock in the
public market following this Offering. The shares being sold in this Offering
will be freely tradable unless acquired by affiliates of the Company.
Upon the completion of this Offering, the holders of Common Stock who did
not purchase shares in this Offering will own 9,356,377 shares of Common Stock,
including: (i) the stockholders of the Founding Companies who will receive, in
the aggregate, 8,243,970 shares in connection with the Mergers; and (ii) the
management and the founders of Enfinity, who own 1,112,407 shares. These shares
have not been registered under the Securities Act of 1933, as amended (the
'Securities Act'), and, therefore, may not be sold unless registered under the
Securities Act or sold pursuant to an exemption from registration, such as the
exemption provided by Rule 144. Furthermore, the stockholders who will receive
these shares have agreed with the Company to certain restrictions on the sale,
transfer or other disposition of these shares following the consummation of this
Offering. Such transfer restrictions will end: (i) as to 50% of the shares, two
years after the consummation of this Offering; (ii) as to the next 25% of the
shares, 30 months after the consummation of this Offering; and (iii) as to the
remaining 25% of these shares, three years after the consummation of this
Offering. In addition, the Company has agreed to enforce on behalf of
NationsBanc Montgomery Securities LLC such transfer restrictions for a period of
180 days after the date of this Prospectus. The stockholders who will receive
these shares have certain demand registration rights commencing three years
after the consummation of this Offering and
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<PAGE>
piggyback registration rights commencing immediately upon the consummation of
this Offering, subject to certain exceptions.
In addition, the Company, all of its officers and directors and the holders
of all shares of Common Stock outstanding prior to this Offering have agreed not
to offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock (the 'Securities'), for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC except for, in the case of the Company, Common Stock issued
pursuant to the Company's 1998 Long-Term Incentive Plan or in connection with
acquisitions.
The Company plans to register an additional 5,000,000 shares of Common
Stock under the Securities Act within 90 days after completion of this Offering
for use by the Company as consideration for future acquisitions. Upon such
registration, these shares generally will be freely tradable after issuance,
unless the resale thereof is contractually restricted or unless the holders
thereof are subject to the restrictions on resale provided in Rule 145 under the
Securities Act. The registration rights described above will not apply to the
registration statement to be filed with respect to these shares. See 'Shares
Eligible for Future Sale' and 'Underwriting.'
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
and continue subsequent to this Offering or that the market price of the Common
Stock will not decline below the initial public offering price. The initial
public offering price for the Common Stock will be determined by negotiation
between the Company and the Representatives of the Underwriters and may bear no
relationship to the price at which the Common Stock will trade after this
Offering. See 'Underwriting' for the factors to be considered in determining the
initial public offering price. After this Offering, the market price of the
Common Stock may be subject to significant fluctuations in response to numerous
factors, including variations in the annual or quarterly financial results of
the Company or its competitors, changes by financial research analysts in their
estimates of the earnings of the Company or the failure of the Company to meet
such estimates, conditions in the economy in general or in the Company's
industry in particular, unfavorable publicity or changes in applicable laws and
regulations (or judicial or administrative interpretations thereof) affecting
the Company or its industry. Moreover, from time to time, the stock market
experiences significant price and volume volatility that may affect the market
price of the Common Stock for reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares of $ per share. In the event the Company issues additional
Common Stock in the future, including shares issued in connection with future
acquisitions, purchasers of Common Stock in this Offering may experience further
dilution. See 'Dilution.'
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
in one or more series without stockholder action. The members of the Board of
Directors of the Company serve staggered terms. The existence of this
'blank-check' preferred stock and of the staggered Board of Directors could
render more difficult or discourage an attempt to obtain control of the Company
by means of a tender offer, merger, proxy contest or otherwise. Certain
provisions of the Delaware General Corporation Law may also discourage takeover
attempts that have not been approved by the Board of Directors. The Company's
By-Laws contain other provisions that may have an anti-takeover effect. See
'Management -- Directors and Executive Officers,' 'Principal Stockholders' and
'Description of Capital Stock.'
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THE COMPANY
Enfinity was formed by the Founding Companies to provide energy and indoor
environmental systems and services to commercial, industrial and institutional
clients. The Company provides a broad range of services throughout the life
cycle of a client's energy and indoor environmental systems, including: (i)
maintenance, repair and replacement; (ii) design, engineering and installation;
and (iii) on-site and off-site management of building systems, including
automated control and monitoring systems. The Founding Companies are
'best-of-class' service providers, each of which has developed specialized and
complementary expertise. The Founding Companies have been in business for an
average of 44 years. Enfinity has entered into agreements to acquire the
Founding Companies simultaneously with and as a condition to the closing of this
Offering. For the year ended December 31, 1997, the Founding Companies had
combined revenues of approximately $364.8 million and provided services in
states. The following is a brief description of the Founding Companies:
BRANDT. Brandt Mechanical Services, Inc., founded in 1952, focuses on
performing large design and build construction projects and turnkey industrial
and special projects. Brandt, headquartered in Dallas, Texas, also maintains
offices in Fort Worth and San Antonio, Texas, and has worked on projects in 16
states. Significant clients of Brandt include Hitachi, Exxon, Fujitsu, Texas
Christian University and ARCO. Brandt's revenues for the year ended December 31,
1997 were approximately $50.4 million.
AIR SYSTEMS. Air Systems, Inc. ('Air Systems'), founded in 1974,
specializes in the design, engineering and installation of energy and indoor
environmental systems for commercial entities in northern California and
performs additional services in plumbing, process piping and sheet metal
construction. Air Systems has particular expertise servicing clients in the
technology sector and has built a state of the art, on-site 'clean room.' Air
Systems was recognized in 1997 as one of the '100 Fastest Growing Private
Companies' in Silicon Valley by Silicon Valley Business Journal. Air Systems,
headquartered in San Jose, California, also operates from an office in Santa
Rosa, California. Significant clients of Air Systems include Devcon, Cisco
Systems, Novellus, Hitachi and Hewlett-Packard. Air Systems' revenues for the
year ended February 28, 1998 were approximately $91.0 million.
ENERGY SYSTEMS. Energy Systems Industries, Inc. ('Energy Systems'), founded
in 1947, primarily performs outsourced facility services to its clients in 15
states, focusing on the on-site maintenance of energy and indoor environmental
systems. Energy Systems, headquartered in Boston, Massachusetts, also operates
from its offices in Hartford, Connecticut, Philadelphia, Pennsylvania and
Washington, D.C. Significant clients of Energy Systems include Sprint,
Prudential Center (Boston), Lucent Technologies, Harvard University, Blue
Cross/Blue Shield of Massachusetts, America Online and Gillette. Energy Systems'
revenues for the year ended December 31, 1997 were approximately $54.2 million.
NEMSI. New England Mechanical Services, Inc. ('NEMSI'), founded in 1966,
specializes in performing design and build projects at manufacturing and
research facilities and on-site maintenance work at nuclear power
plants. NEMSI recently was named '1998 Commercial Contractor of the Year' by
Contracting Business magazine. NEMSI is headquartered in Vernon, Connecticut and
has branch offices in Boston and Springfield, Massachusetts and Hartford,
Fairfield and New London, Connecticut. Significant clients of NEMSI include
Union Carbide, Bristol-Myers Squibb, Pfizer, General Electric, Pratt & Whitney,
Otis Elevator, General RE and the United States Naval Submarine Base in Groton,
Connecticut. NEMSI's revenues for the year ended December 31, 1997 were
approximately $39.4 million.
LEE. Lee Company ('Lee'), founded in 1944, specializes in the design,
engineering and installation of energy and indoor environmental systems and
possesses specialized expertise relating to health care facility projects. Lee
is one of the largest mechanical services companies in Nashville, Tennessee and
has worked on projects in 25 states. Significant clients of Lee include Nissan
Motor Manufacturing, Inc., Peterbilt Motors Company, Whirlpool Corporation,
Columbia/HCA and Primus. Lee's revenues for the year ended December 31, 1997
were approximately $39.7 million.
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HILL YORK. Hill York Corporation and Hill York Service Corporation
(collectively, 'Hill York'), founded in 1936, specializes in the design,
fabrication, installation and service of energy and indoor environmental systems
in high rise luxury condominiums, hotels, universities and convention centers
throughout South Florida. Hill York, with headquarters in Fort Lauderdale,
Florida, also serves its clients from offices in Miami, West Palm Beach and
Naples, Florida. Significant clients of Hill York include Motorola, Marriott,
Sheraton, Nova Southeastern University and Century Village. Hill York's revenues
for the year ended December 31, 1997 were approximately $34.2 million.
MECHANICAL SERVICES. Mechanical Services of Orlando, Inc. ('Mechanical
Services'), founded in 1974, focuses on design and build projects and provides
operation and maintenance services, primarily in Florida.
Mechanical Services has developed expertise in performing specialized mechanical
service projects, such as installing support systems for aquatic animals at Sea
World in Orlando, Florida. In addition, Mechanical Services has an Environmental
Services Group that provides indoor air quality services. Mechanical Services
was named the '1997 Commercial Contractor of the Year' by Contracting Business
magazine. Mechanical Services is headquartered in Orlando, Florida and also
serves its customers from an office in Tampa, Florida. Significant clients
of Mechanical Services include Lucent Technologies, Time Warner, Sprint, Sea
World and LaSalle Partners. Mechanical Services' revenues for the year ended
December 31, 1997 were approximately $28.3 million.
AIRCOND. Aircond Corporation ('Aircond'), founded in 1937, focuses on the
maintenance, repair and replacement of energy and indoor environmental systems.
With over 130 technicians, Aircond is one of the largest service providers of
such systems in the Southeast. Aircond places a strong emphasis on training and
offers a six-year formal training program for its service technicians. Aircond,
headquartered in Smyrna, Georgia, has additional offices in Dalton and LaGrange,
Georgia, Columbia and Greenville, South Carolina and Charlotte, North Carolina.
Significant clients of Aircond include Coca-Cola, American Software, Michelin
Tires and the Hughes Aircraft division of Raytheon. Aircond's revenues for the
year ended September 30, 1997 were approximately $26.9 million.
The aggregate consideration to be paid by Enfinity to acquire the
Founding Companies consists of approximately $80.9 million in cash and 8,243,970
shares of Common Stock. The Company will also assume $26.2 million in
outstanding indebtedness of the Founding Companies. See 'Certain Transactions.'
The closing of each Merger is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
Mergers of the representations and warranties made by the Founding Companies,
their principal stockholders and the Company; the performance of each of their
respective covenants included in the agreements relating to the Mergers (the
'Merger Agreements'); and the nonexistence of a material adverse change in the
business, results of operations or financial condition of each Founding Company.
For a further description of the transactions pursuant to which these businesses
will be acquired, see 'Certain Transactions -- Organization of the Company.'
Enfinity Corporation is a Delaware corporation. Its executive offices are
located at 400 Lake Ridge Drive, Smyrna, Georgia 30082, and its telephone number
at that address is (770) 444-3355.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, after deducting the underwriting discount and estimated offering
expenses, are estimated to be approximately $ million ($ million if the
Underwriters' over-allotment option is exercised in full). Of the net proceeds,
approximately $ million will be used to pay the cash portion of the purchase
price for the Founding Companies, of which approximately $ million will be
paid directly or indirectly to former stockholders of the Founding Companies who
will become officers, directors or holders of more than 5% of the Common Stock
of the Company. In addition, approximately $ million of the net proceeds will
be used to repay certain indebtedness of the Founding Companies. Such
indebtedness matures at various times through and bears interest at a weighted
average rate of % per annum. Approximately $ , $ and $ of such
indebtedness is owed to stockholders and affiliates of , and
, respectively. See 'Certain Transactions.'
The remaining $ million of net proceeds will be used for working capital
and for general corporate purposes, including future acquisitions. The Company
continues to review various strategic acquisition opportunities with other
energy and indoor environmental systems and service providers. Except for the
Merger Agreements with the Founding Companies, the Company has no agreements to
effect any acquisitions. Pending such uses, the net proceeds will be invested in
short-term, interest-bearing, investment grade securities.
In addition to the net proceeds of this Offering, the Company will retain
the cash balances of the Founding Companies. Such balances totaled approximately
$7.3 million as of December 31, 1997. The Company
is currently seeking bank commitments for revolving credit
facilities of up to $ million to be used for working capital and other general
corporate purposes, including future acquisitions. No commitment has been
obtained, and there can be no assurance that the Company will be able to obtain
any revolving credit facility or other financing it may need on terms the
Company deems acceptable. See 'Risk Factors -- Risks Related to Acquisition
Financing' and 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources.'
DIVIDEND POLICY
The Company intends to retain all of its earnings, if any, to finance the
expansion of its business and for general corporate purposes, including future
acquisitions, and does not anticipate paying any cash dividends on its Common
Stock for the foreseeable future. In addition, in the event the Company is
successful in obtaining one or more lines of credit, it is likely that any such
facility will include restrictions on the ability of the Company to pay
dividends without the consent of the lender.
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CAPITALIZATION
The following table sets forth the short-term debt and current maturities
of long-term debt and the capitalization of the Company at December 31, 1997:
(i) on a pro forma combined basis to give effect to the Mergers; and (ii) as
further adjusted to give effect to this Offering and the application of the
estimated net proceeds therefrom. See 'Selected Financial Data' and 'Use of
Proceeds.' This table should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
PRO AS
FORMA ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term debt.............................. $12,001 $
--------- -----------
--------- -----------
Long-term debt, less current portion.................................................. $13,364 $
Stockholders' equity:
Preferred Stock: $0.01 par value, 500,000 shares authorized; none issued or
outstanding..................................................................... --
Common Stock: $0.01 par value, 49,000,000 shares authorized; 9,356,377 shares
issued and outstanding, pro forma; and shares issued and outstanding, as
adjusted(1)..................................................................... 94
Additional paid-in capital....................................................... 87,275
Retained deficit................................................................. (29,579)
--------- -----------
Total stockholders' equity.................................................. 57,790
--------- -----------
Total capitalization................................................... $71,154 $
--------- -----------
--------- -----------
</TABLE>
- ------------
(1) Excludes 2,343,110 shares of Common Stock reserved for issuance pursuant to
the Company's 1998 Long-Term Incentive Plan, of which options to purchase
shares will be granted by the Company concurrently with the Mergers
and this Offering. See 'Management -- 1998 Long-Term Incentive Plan.'
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DILUTION
The deficit in pro forma net tangible book value of the Company as of
December 31, 1997 was approximately $( ) million, or $( ) per
share of Common Stock, after giving effect to the Mergers. The deficit in pro
forma net tangible book value per share represents the Company's pro forma net
tangible assets less its total liabilities, divided by the number of shares of
Common Stock to be outstanding after giving effect to the Mergers. After giving
effect to the sale of the shares of Common Stock offered hereby (at an assumed
initial public offering price of $ per share less the underwriting discount
and estimated offering expenses) and the application of the net proceeds
therefrom, the Company's pro forma net tangible book value as of December 31,
1997 would have been approximately $ , or approximately $ per share.
This represents an immediate increase in pro forma net tangible book value of
approximately $ per share to existing stockholders and an immediate
dilution of approximately $ per share to new investors purchasing the
shares in this Offering. The following table illustrates this pro forma dilution
per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................................ $
-------
Pro forma deficit in net tangible book value before this Offering.............. $( )
Increase in pro forma net tangible book value attributable to new investors....
--------
Pro forma net tangible book value after this Offering............................
-------
Dilution to new investors........................................................ $
-------
-------
</TABLE>
The following table sets forth the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by existing stockholders (after giving effect to the Mergers) and
the new investors purchasing shares of Common Stock from the Company in this
Offering:
<TABLE>
<CAPTION>
SHARES PURCHASED AVERAGE
----------------- TOTAL PRICE
NUMBER PERCENT CONSIDERATION(1) PER SHARE
------ ------- ---------------- ---------
<S> <C> <C> <C> <C>
Existing stockholders........................ $ $
New investors................................ $
------ ------- ----------------
Total................................... $
------ ------- ----------------
------ ------- ----------------
</TABLE>
- ------------
(1) Total consideration paid by existing stockholders represents the combined
stockholders' equity, including the stockholders' equity of the Founding
Companies, before this Offering, adjusted to reflect: (i) the payment of
$ in cash to the stockholders of the Founding Companies as part of
the consideration for the Mergers; (ii) the transfer of selected assets
(including 'Excess Working Capital' as agreed upon between the Company and
certain Founding Companies) to, and the assumption of selected liabilities
of, certain stockholders of the Founding Companies in the net amount of
approximately $ in connection with the Mergers; and (iii) S
Corporation distributions to be made to the stockholders of certain of the
Founding Companies. See the Notes to the Unaudited Pro Forma Combined
Financial Statements.
19
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Enfinity will acquire the Founding Companies simultaneously with and as a
condition to the consummation of this Offering. For financial statement
presentation purposes, Brandt has been identified as the accounting acquiror.
The following selected historical financial data of Brandt as of December 31,
1996 and 1997, for the period from May 25 to December 31, 1995 and for the years
ended December 31, 1996 and 1997 have been derived from the audited financial
statements of Brandt included elsewhere in this Prospectus. The selected
historical data of Brandt as of December 31, 1995 have been derived from the
audited financial statements of Brandt not included in this Prospectus. In May
1995, management of Brandt purchased all issued and outstanding common stock
from Brandt's former parent. Accordingly, financial information for Brandt is
presented for periods subsequent to the date of this purchase. The selected
unaudited pro forma combined financial data have been adjusted for: (i) the
consummation of the Mergers; (ii) certain pro forma adjustments to the
historical financial statements; and (iii) the consummation of this Offering and
the application of the net proceeds therefrom. See the Unaudited Pro Forma
Combined Financial Statements and the notes thereto and the historical financial
statements of Brandt and the other Founding Companies and the notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
PRO FORMA COMBINED(1):
Revenues......................................................................................... $364,767
Cost of revenues................................................................................. 293,749
-----------------
Gross profit................................................................................ 71,018
Selling, general and administrative expenses(2).................................................. 49,194
Amortization of goodwill, net(3)................................................................. 2,200
-----------------
Income from operations...................................................................... 19,624
Other expense, net(4)............................................................................ 821
-----------------
Income before provision for income taxes......................................................... 18,803
Provision for income taxes(5).................................................................... 8,401
-----------------
Net income....................................................................................... $ 10,402
-----------------
Net income per share, basic and diluted.......................................................... $0.60
-----
-----
Shares used in computing pro forma basic net income per share(6)................................. 17,276,056
Shares used in computing pro forma diluted net income per share(6)............................... 17,321,377
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
MAY 25 TO DECEMBER 31,
DECEMBER 31, -----------------------------
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
BRANDT
Revenues............................................................. $ 15,869 $ 38,723 $ 50,435
Cost of revenues..................................................... 13,170 31,932 42,032
------------ ------------ -------------
Gross profit.................................................... 2,699 6,791 8,403
Selling, general and administrative expenses......................... 2,562 6,764 5,287
Accretion of negative goodwill....................................... (371) (636) (636)
------------ ------------ -------------
Income from operations.......................................... 508 663 3,752
Other income, net.................................................... (77) (161) (164)
------------ ------------ -------------
Income before provision for income taxes............................. 585 824 3,916
Provision for income taxes(7)........................................ 24 41 --
------------ ------------ -------------
Net income........................................................... $ 561 $ 783 $ 3,916
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
(table continued on next page)
20
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
COMBINED COMPANIES
BRANDT ---------------------------
--------------------------- DECEMBER 31, 1997
DECEMBER 31, ---------------------------
--------------------------- PRO FORMA AS
1995 1996 1997 COMBINED(8) ADJUSTED(9)
------ ------ ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $3,562 $3,499 $ 5,866 $(61,253)(10) $
Total assets........................................... 7,381 9,909 16,344 244,786
Total long-term debt, net of current portion........... 207 121 -- 13,364
Stockholders' equity................................... 1,357 1,345 4,548 57,790
</TABLE>
- ------------
(1) The pro forma combined statement of operations data assume that the Mergers
and this Offering were consummated on January 1, 1997 and are not
necessarily indicative of the results the Company would have obtained had
these events actually then occurred and should not be construed as
representative of future operating results.
(2) Reflects: (i) a pro forma reduction of approximately $6.1 million
attributable to the Compensation Differential; and (ii) the elimination of
excess profit sharing contributions of $237,000 in accordance with the
Merger Agreements. Does not reflect the elimination of a one-time, non-cash
compensation charge of $665,000 resulting from issuance of stock to
employees of NEMSI.
(3) Reflects the amortization of $113.2 million of goodwill to be recorded as a
result of the Mergers over a 40-year period and computed on the basis
described in the Notes to the Unaudited Pro Forma Combined Financial
Statements, net of Brandt's existing negative goodwill.
(4) Reflects a reduction of interest expense of $749,000 associated with
certain debt to be repaid from the proceeds of this Offering and debt to be
repaid by certain Founding Company stockholders pursuant to the Merger
Agreements.
(5) Assumes all income is subject to a corporate income tax rate of 40% and all
goodwill is non-deductible.
(6) Shares used to calculate pro forma basic earnings per share include: (i)
1,112,407 shares issued to management of and consultants to Enfinity; (ii)
8,243,970 shares to be issued to the owners of the Founding Companies; and
(iii) 7,919,680 shares representing the number of shares sold in this
Offering necessary to pay the $80.9 million cash portion of the
consideration for the Mergers, repay $6.5 million of indebtedness of the
Founding Companies, pay distributions of $6.7 million to certain Founding
Company stockholders, pay $1.3 million of liquidation value of preferred
stock at Energy Systems and pay the underwriting discount and the expenses
of this Offering. In addition, the number of shares used to compute pro
forma diluted net income per share includes 45,321 shares (using the
treasury stock method) related to dilution attributable to options to
purchase Common Stock of the Company at an exercise price below the assumed
initial offering price. The options will be issued by the Company in
exchange for existing options to purchase shares of common stock of one of
the Founding Companies. See 'Certain Transactions.'
(7) Brandt did not record income tax expense in 1997 due to its status
(beginning January 1, 1997) as an S Corporation.
(8) The pro forma combined balance sheet data assume that the Mergers were
consummated on December 31, 1997 and are not necessarily indicative of the
financial position that would have been achieved had these events actually
then occurred and should not be construed as representative of future
financial position.
(9) Adjusted to reflect the sale of the 8,000,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
See 'Use of Proceeds.'
(10) Reflects $88.9 million payable to the owners of the Founding Companies,
representing the cash portion of the consideration for the Mergers to be
paid from a portion of the net proceeds of this Offering, plus the transfer
of selected assets (including 'Excess Working Capital' as agreed upon
between the Company and certain Founding Companies) and distributions,
including S Corporation distributions, to be made to the stockholders of
certain of the Founding Companies. See 'Use of Proceeds' and the Notes to
the Unaudited Pro Forma Combined Financial Statements.
21
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
certain of the factors set forth under 'Risk Factors' and elsewhere in this
Prospectus. The following should be read in conjunction with 'Risk Factors,'
'Selected Financial Data,' the Unaudited Pro Forma Combined Financial Statements
of the Company and the notes thereto and the historical financial statements of
the Founding Companies and the notes thereto appearing elsewhere in this
Prospectus.
INTRODUCTION
General
Enfinity was formed in 1997 by the Founding Companies to provide energy and
indoor environmental systems and services to commercial, industrial and
institutional clients. Enfinity has conducted no operations and generated no
revenues to date and has entered into agreements to acquire the eight Founding
Companies simultaneously with the closing of this Offering. All references to
the 'Company' in the following discussion includes the Founding Companies as if
the Mergers had occurred during the periods discussed.
The Company's revenues are derived from providing a broad range of services
throughout the life cycle of a client's energy and indoor environmental systems,
including (i) maintenance, repair and replacement; (ii) design, engineering and
installation; and (iii) on-site and off-site management of building systems,
including control and monitoring systems. The Company derived approximately
52.9% of its pro forma combined 1997 revenues from maintenance, repair and
replacement services, 36.6% from design, engineering and installation services
and 10.5% from the on-site and off-site management of building systems.
The time to complete the Company's design, engineering and installation
projects generally ranges from a period of 30 days to 18 months. Design,
engineering and installation projects are accounted for under the
percentage-of-completion method of accounting, whereby revenues are recognized
based on the percentage of costs incurred to total estimated costs for each
contract. Cost of revenues consists of direct labor, raw materials, HVAC
components, subcontracted labor and an allocation of indirect costs, including
supervisory labor, equipment depreciation and materials.
Costs and estimated earnings in excess of billings on uncompleted contracts
are recorded as an asset and billings in excess of costs and estimated earnings
on uncompleted contracts are recorded as a liability on the balance sheet.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income, and their effects are recognized in the period in which the
revisions are determined.
The balances billed but not currently paid by clients pursuant to retainage
provisions in construction contracts generally are due upon completion of the
contracts and acceptance by the client. Based on the Company's experience with
similar contracts in recent years, the retainage portion of accounts receivable
outstanding at December 31, 1997 is expected to be collected in 1998.
Maintenance, repair and replacement revenues are recognized as services are
performed or over the life of the contract. Cost of revenues is similar to the
costs for design, engineering and installation services, consisting of direct
labor, raw materials, HVAC components and an allocation of indirect costs,
including supervisory labor and equipment depreciation.
On-site and off-site management of building services, including control and
monitoring systems on an outsourced basis, are performed under service contracts
averaging from one to three years, and generally are terminable by either party
upon 30 to 60 days' notice. These contracts provide for periodic billings, and
revenues are recognized over the life of the contract. Cost of revenues consists
primarily of direct labor.
22
<PAGE>
<PAGE>
Selling, general and administrative expenses consist primarily of
compensation and benefits to management, sales and administrative employees,
expenses relating to facilities, including depreciation, and professional
expenses.
The Company's operations are subject to seasonal variations. In certain
parts of the United States, the demand for new installations of HVAC and other
energy and indoor environmental systems can be substantially lower during the
winter months. Maintenance, repair and replacement services are subject to
seasonality as well. The Company expects that its revenues and operating results
generally will be lower in the first and fourth calendar quarters. The energy
and indoor environmental systems and services industry is also subject to
fluctuations caused by periods of inclement weather. Prolonged extreme climate
or weather conditions may cause unpredictable fluctuations in operating results.
Following the Mergers, the Company expects to realize certain savings as a
result of: (i) operating efficiencies and purchasing economies of scale in areas
such as system components, raw materials, service vehicle related expenses and
telecommunications; (ii) consolidation of insurance, employee benefits and other
administrative expenses; and (iii) the Company's ability to borrow at interest
rates lower than those at which most of the Founding Companies have borrowed
historically. The Company has not and cannot quantify these savings until
completion of the Mergers and integration of the Founding Companies. The Company
also expects to incur additional costs associated with public ownership,
corporate management and administration. However, these costs, like the savings
they offset, cannot be quantified accurately at this time. Accordingly, neither
the expected savings nor the expected costs have been included in the pro forma
combined financial information of the Company. These various costs and possible
cost savings may make comparison of future operating results with historical
operating results difficult.
Securities and Exchange Commission Staff Accounting Bulletin No. 97 ('SAB
97') requires the application of purchase accounting when three or more
substantive operating entities combine in a single business combination effected
by the issuance of stock just prior to or contemporaneously with an initial
public offering and the combination does not meet the pooling-of-interests
criteria of Accounting Principles Board Opinion No. 16. Brandt has been
identified as the accounting acquiror in accordance with the provisions of SAB
97, which states that the recipient of the largest portion of voting rights in
the combined corporation is presumed to be the accounting acquiror for financial
statement presentation purposes. Accordingly, the excess purchase price over the
fair value of the net assets acquired from Air Systems, Energy Systems, NEMSI,
Lee, Hill York, Mechanical Services and Aircond of approximately $113.2 million
will be amortized over a period of 40 years as a non-cash charge to the
Company's income statement. This amortization is approximately $2.8 million per
year. The amount of goodwill to be recorded and the related amortization expense
will depend in part on the initial public offering price.
The Compensation Differential
The Founding Companies have operated as independent, privately-owned
entities throughout the periods presented. Their results of operations reflect
varying historical levels of owners' compensation. Certain owners of the
Founding Companies have agreed prospectively in employment agreements to be
entered into upon the consummation of this Offering to certain reductions of
their compensation and benefits in connection with the Mergers (the
'Compensation Differential'). Pursuant to the Merger Agreements, members of
senior management of the Founding Companies have agreed, simultaneously with the
closing of the Mergers, to enter into employment agreements with their
respective Founding Companies that provide for specified annual salaries in
addition to certain benefits, including vacation, health and insurance benefits.
Pursuant to the terms of the employment agreements, the owners of the Founding
Companies will be eligible for performance-based bonuses. The bonuses paid
historically to the owners of the Founding Companies were awarded based on the
owners' discretion, and compensation expense has been reduced accordingly in the
pro forma adjustments. On a prospective basis, the Company expects that bonuses
will only be paid if earnings increase to a level substantially in excess of pro
forma combined earnings for the year ended December 31, 1997. See 'Management --
Executive Compensation; Employment Agreements; Covenants-Not-To-Compete.' The
Compensation Differential was approximately $6.1 million for the year ended
December 31, 1997. These amounts have
23
<PAGE>
<PAGE>
been reflected as a pro forma adjustment in the Unaudited Pro Forma Combined
Statement of Operations.
In February 1998, Enfinity sold an aggregate of 661,148 shares of Common
Stock to consultants and management for nominal consideration
and, in May 1998, as previously agreed, Enfinity sold an aggregate
of 451,259 shares of Common Stock to management for nominal consideration.
As a result, the Company's financial statements will reflect a non-recurring,
non-cash compensation charge of $ million in the three month period ended
March 31, 1998 and $ million in the six month period ending June 30, 1998.
Amortization of Intangible Assets
The goodwill subsequent to the Mergers of $113.2 million represents
approximately 46.1% of the Company's pro forma total assets as of December 31,
1997. The Company plans to evaluate continually whether events or circumstances
have occurred that indicate that the remaining useful life of goodwill may
warrant revision. Additionally, in accordance with the provisions of Statement
of Financial Accounting Standards ('SFAS') No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,'
the Company will evaluate any potential goodwill impairments by reviewing the
future cash flows of the respective acquired entities' operations and comparing
these amounts with the carrying value of the associated goodwill.
Recently Issued Accounting Standards
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ('FASB') issued SFAS No. 128, 'Earnings Per Share.' SFAS No. 128
establishes standards for computing and presenting earnings per share ('EPS')
and applies to entities with publicly held common stock or potential common
stock. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997; earlier application is not permitted. SFAS No.
128 requires restatement of all prior-period EPS data presented. The
implementation of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share as determined under current accounting rules.
Reporting Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
'Reporting Comprehensive Income.' SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company intends to
adopt SFAS No. 130 in 1998.
Segment Reporting. In June 1997, the FASB issued SFAS No. 131, 'Disclosures
About Segments of An Enterprise and Related Information.' SFAS No. 131
establishes standards for reporting information about operating segments in
annual financial statements and in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. In general, such
information must be reported for externally in the same manner used for internal
management purposes. SFAS No. 131 is effective for financial statements issued
for periods beginning after December 15, 1997. In the initial year of adoption,
comparative information for earlier years must be restated. Since SFAS No. 131
only requires disclosure of certain information, adoption will not affect the
Company's financial position or results of operations.
YEAR 2000
Currently, certain of the Founding Companies' computer programs are
partially year 2000 noncompliant. The Company believes that it has taken all
appropriate steps to ensure Year 2000 compliance. The Company does not
anticipate that the Year 2000 problem will have a material adverse effect on its
business, financial condition or results of operations.
24
<PAGE>
<PAGE>
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following table sets forth the pro forma combined operating results of
the Company for the year ended December 31, 1997. For a discussion of the pro
forma adjustments, see the Unaudited Pro Forma Combined Financial Statements and
the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues............................................................................... $364,767 100.0%
Cost of revenues....................................................................... 293,749 80.5
-------- -----
Gross profit........................................................................... 71,018 19.5
Selling, general and administrative expenses........................................... 49,194 13.5
Amortization of goodwill, net.......................................................... 2,200 0.6
-------- -----
Income from operations................................................................. $ 19,624 5.4%
-------- -----
-------- -----
</TABLE>
PRO FORMA COMBINED LIQUIDITY AND CAPITAL RESOURCES
The Founding Companies' principal sources of liquidity have historically
been cash flows from operating activities. After the consummation of the Mergers
and this Offering, the Company will have approximately $8.2 million of cash. It
is expected that certain short-term and long-term debt of the Founding
Companies, totaling approximately $7.9 million as of December 31, 1997, will be
repaid by stockholders and from the net proceeds of this Offering.
The Company is currently seeking bank commitments for revolving credit
facilities of up to $ million. No commitment has been obtained, and there
can be no assurance that the Company will be able to obtain a revolving
facility, or other financing it may need, on terms the Company deems acceptable.
It is expected that the facility, if obtained, will require the Company to
comply with various loan covenants, including: (i) maintenance of certain
financial ratios, including minimum tangible net worth; (ii) restrictions on
additional indebtedness; and (iii) restrictions on liens, guarantees, advances
and dividends. The facility is intended to be used for acquisitions, capital
expenditures and general corporate purposes.
The Founding Companies' capital expenditures for the year ended December
31, 1997 were approximately $8.6 million. These expenditures were primarily for
purchases of equipment and the construction of a new facility for Lee. The
Company believes that cash flow from operations, borrowings under the proposed
credit facilities and the unallocated net proceeds of this Offering will be
sufficient to fund the Company's expected working capital needs, debt service
requirements and planned capital expenditures for at least the next 12 months.
The Company intends to pursue selected acquisition opportunities. The
timing or success of any acquisition efforts is unpredictable. Accordingly, the
Company is unable to accurately estimate its expected capital commitments.
Funding for future acquisitions will likely come from a combination of the net
proceeds of this Offering, cash flow from operations, borrowings under
anticipated revolving credit facilities and the issuance of additional equity.
The Company plans to register 5,000,000 shares of its Common Stock under the
Securities Act after completion of this Offering for use by the Company as
consideration for future acquisitions.
RESULTS OF OPERATIONS -- BRANDT
Founded in 1952, Brandt focuses on performing large design and build
construction projects and turnkey industrial and special projects. In May 1995,
all of the operating subsidiary's issued and outstanding common stock was
purchased by Brandt management from Brandt's former parent. Accordingly,
financial information is presented for periods subsequent to the date of this
purchase.
For the year ended December 31, 1997, approximately 61.5% of Brandt's
revenues was derived from maintenance, repair and replacement services and 38.5%
was derived from design, engineering and installation services.
25
<PAGE>
<PAGE>
The following table sets forth selected statement of operations data for
Brandt, and such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
PERIOD FROM
MAY 25 TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------
1995 1996 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $15,869 100.0% $38,723 100.0% $50,435 100.0%
Cost of revenues........................................ 13,170 83.0 31,932 82.5 42,032 83.3
------- ----- ------- ----- ------- -----
Gross profit............................................ 2,699 17.0 6,791 17.5 8,403 16.7
Selling, general and administrative expenses............ 2,562 16.1 6,764 17.4 5,287 10.4
Accretion of negative goodwill.......................... (371) (2.3) (636) (1.6) (636) (1.3)
------- ----- ------- ----- ------- -----
Income from operations.................................. $ 508 3.2% $ 663 1.7% $ 3,752 7.4%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 -- BRANDT
Revenues. Revenues increased $11.7 million, or 30.2%, from $38.7 million
for the year ended December 31, 1996 to $50.4 million for the year ended
December 31, 1997, primarily as a result of growth in new installation and
retrofit projects. This growth was driven by strong market conditions and
management's focus on new business development.
Gross profit. Gross profit increased $1.6 million, or 23.7%, from $6.8
million for the year ended December 31, 1996 to $8.4 million for the year ended
December 31, 1997. As a percentage of revenues, gross profit decreased from
17.5% for the year ended December 31, 1996 to 16.7% for the year ended December
31, 1997, primarily as a result of a trend toward guaranteed maximum (cost plus)
work, which generally has lower margins than design and build projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $1.5 million, or 21.8%, from $6.8 million for
the year ended December 31, 1996 to $5.3 million for the year ended December 31,
1997, primarily due to a reduction in shareholder bonuses in 1997 compared to
1996. As a percentage of revenues, selling, general and administrative expenses
decreased from 17.4% for the year ended December 31, 1996 to 10.4% for the year
ended December 31, 1997. Excluding the Compensation Differential of $2.8 million
for 1996 and $353,000 for 1997, selling, general and administrative expenses as
a percentage of revenues decreased from 10.3% to 9.8%.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE PERIOD FROM MAY 25,
1995 (INCEPTION) TO DECEMBER 31, 1995 -- BRANDT
Revenues. Revenues were $15.9 million for the period from May 25, 1995 to
December 31, 1995 and $38.7 million for the year ended December 31, 1996. This
increase in revenues was primarily due to the comparison of a seven month period
to a twelve month period, as well as growth in the design, engineering and
installation revenues as a result of new business development subsequent to the
acquisition by Brandt management on May 25, 1995.
Gross profit. Gross profit was $2.7 million for the period from May 25 to
December 31, 1995 and $6.8 million for the year ended December 31, 1996. As a
percentage of revenues, gross profit remained relatively consistent at 17.0 %
for the period from May 25, 1995 to December 31, 1995 and 17.5% for the year
ended December 31, 1996.
Selling, general and administrative expenses. Selling, general and
administrative expenses were $2.6 million for the period from May 25, 1995 to
December 31, 1995 and $6.8 million for the year ended December 31, 1996. As a
percentage of revenues, selling, general and administrative expenses increased
from 16.1% for the period from May 25, 1995 to December 31, 1995 to 17.4% for
the year ended December 31, 1996. Excluding the Compensation Differential of
$404,000 for 1995 and $2.8 million for 1996, selling, general and administrative
expenses decreased as a percentage of revenues from 13.6% to 10.3% as Brandt was
able to generate operating leverage by maintaining relatively constant selling,
general and administrative expenses despite the increased activity.
26
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES -- BRANDT
Brandt generated approximately $1.2 million in net cash from operating
activities for the year ended December 31, 1997. Brandt used $920,000 in
financing activities for the year ended December 31, 1997, consisting of
$207,000 for payments on long-term debt and $713,000 for distributions to
stockholders.
At December 31, 1997, Brandt had working capital of $5.9 million and no
long-term debt.
RESULTS OF OPERATIONS -- AIR SYSTEMS
Founded in 1974, Air Systems specializes in the design, engineering and
installation of energy and indoor environmental systems for commercial entities
in northern California and performs additional services in plumbing, process
piping and sheet metal construction.
For the year ended February 28, 1998, approximately 61.9% of Air System's
revenues was derived from maintenance, repair and replacement services and 38.1%
was derived from design, engineering and installation services.
The following table sets forth selected statement of operations data for
Air Systems, and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, YEAR ENDED FEBRUARY 28,
--------------- -----------------------------------
1996 1997 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $37,463 100.0% $55,528 100.0% $90,969 100.0%
Cost of revenues........................................ 29,527 78.8 44,098 79.4 75,149 82.6
------- ----- ------- ----- ------- -----
Gross profit............................................ 7,936 21.2 11,430 20.6 15,820 17.4
Selling, general and administrative expenses............ 6,449 17.2 8,232 14.8 11,370 12.5
------- ----- ------- ----- ------- -----
Income from operations.................................. $ 1,487 4.0% $ 3,198 5.8% $ 4,450 4.9%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
RESULTS FOR THE YEAR ENDED FEBRUARY 28, 1998 COMPARED TO THE YEAR ENDED FEBRUARY
28, 1997 -- AIR SYSTEMS
Revenues. Revenues increased $35.4 million, or 63.8%, from $55.5 million
for the year ended February 28, 1997 to $91.0 million for the year ended
February 28, 1998, primarily due to an increase of approximately $28.6 million
from two existing clients and $3.6 million as a result of two new clients. The
increase in Air Systems' revenue was primarily related to projects performed for
clients in the electronics industry.
Gross profit. Gross profit increased $4.4 million, or 38.4%, from $11.4
million for the year ended February 28, 1997 to $15.8 million for the year ended
February 28, 1998. As a percentage of revenues, gross profit decreased from
20.6% for the year ended February 28, 1997 to 17.4% for the year ended February
28, 1998, due primarily to the impact of one project in which costs are expected
to exceed contract revenues by approximately $1.2 million.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $3.1 million, or 38.1%, from $8.2 million for
the year ended February 28, 1997 to $11.4 million for the year ended February
28, 1998. As a percentage of revenues, selling, general and administrative
expenses decreased from 14.8% to 12.5%. This decrease in selling, general and
administrative expenses as a percentage of revenues was primarily due to an
increase in administrative personnel time associated with specific contracts,
which are allocated to cost of revenues. Excluding the Compensation Differential
of $1.2 million for 1997 and $1.4 million for 1998, selling, general and
administrative expenses decreased as a percentage of revenues from 12.6% to
11.0%.
27
<PAGE>
<PAGE>
RESULTS FOR THE YEAR ENDED FEBRUARY 28, 1997 COMPARED TO THE YEAR ENDED FEBRUARY
29, 1996 -- AIR SYSTEMS
Revenues. Revenues increased $18.1 million, or 48.2%, from $37.5 million
for the year ended February 29, 1996 to $55.5 million for the year ended
February 28, 1997. This increase was primarily due to new relationships with two
significant clients. These relationships were developed through increased sales
and marketing efforts targeted at general contractors with which Air Systems had
not previously done business.
Gross profit. Gross profit increased $3.5 million, or 44.0%, from $7.9
million for the year ended February 29, 1996 to $11.4 million for the year ended
February 28, 1997. As a percentage of revenues, gross profit decreased from
21.2% for the year ended February 29, 1996 to 20.6% for the year ended February
28, 1997, primarily due to the entry by Air Systems into additional large volume
contracts with lower overall margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.8 million, or 27.6%, from $6.4 million for
the year ended February 29, 1996 to $8.2 million for the year ended February 28,
1997. As a percentage of revenues, selling, general and administrative expenses
decreased from 17.2% to 14.8% as Air Systems was able to generate operating
leverage by maintaining relatively constant selling, general and administrative
expenses despite the increased activity. Excluding the Compensation Differential
of $213,000 for 1996 and $1.2 million for 1997, selling, general and
administrative expenses decreased as a percentage of revenues from 16.6% to
12.6%.
LIQUIDITY AND CAPITAL RESOURCES -- AIR SYSTEMS
Air Systems used $5.2 million in net cash from operating activities for the
year ended February 28, 1998. Net cash used in investing activities was
approximately $3.5 million, principally for property and equipment purchases.
Net cash provided by financing activities was $8.7 million, principally from
proceeds from its line of credit and long-term debt.
At February 28, 1998, Air Systems had working capital of $3.7 million and
$10.1 million of total debt outstanding.
RESULTS OF OPERATIONS -- ENERGY SYSTEMS
Founded in 1947, Energy Systems primarily performs outsourced facility
services for its clients in 15 states, focusing on the on-site maintenance of
energy and indoor environmental systems.
For the year ended December 31, 1997, approximately 65.0% of Energy
System's revenues was derived from the on-site and off-site management of
building systems, and 35.0% was derived from maintenance, repair and replacement
services.
The following table sets forth selected statement of operations data for
Energy Systems, and such data as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $44,177 100.0% $48,069 100.0% $54,228 100.0%
Cost of revenues........................................ 36,498 82.6 40,299 83.8 45,893 84.6
------- ----- ------- ----- ------- -----
Gross profit............................................ 7,679 17.4 7,770 16.2 8,335 15.4
Selling, general and administrative expenses............ 6,537 14.8 6,948 14.5 6,869 12.7
------- ----- ------- ----- ------- -----
Income from operations.................................. $ 1,142 2.6% $ 822 1.7% $ 1,466 2.7%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
28
<PAGE>
<PAGE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 -- ENERGY SYSTEMS
Revenues. Revenues increased $6.2 million, or 12.8%, from $48.1 million for
the year ended December 31, 1996 to $54.2 million for the year ended December
31, 1997, primarily due to an increase of approximately $4.4 million in revenues
generated from on-site and off-site management of building systems. Of this
increase, approximately $3.0 million was generated by a new client contract
which began in May 1997. The remaining increase in revenues was attributable to
additional plan and spec projects.
Gross profit. Gross profit increased $565,000, or 7.3%, from $7.8 million
for the year ended December 31, 1996 to $8.3 million for the year ended December
31, 1997. As a percentage of revenues, gross profit decreased from 16.2% for the
year ended December 31, 1996 to 15.4% for the year ended December 31, 1997 as a
result of an increase in on-site and off-site maintenance of building systems
which, although a recurring source of revenues, has lower margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses remained at $6.9 million for each of the years ended
December 31, 1996 and 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 14.5% for the year ended December 31,
1996 to 12.7% for the year ended December 31, 1997 as Energy Systems was able to
generate operating leverage by maintaining the same level of selling, general
and administrative expenses despite the increased activity. Excluding the
Compensation Differential of $268,000 for 1996 and $283,000 for 1997, selling,
general and administrative decreased as a percentage of revenues from 13.9% to
12.1%.
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1995 -- ENERGY SYSTEMS
Revenues. Revenues increased $3.9 million, or 8.8%, from $44.2 million for
the year ended December 31, 1995 to $48.1 million for the year ended December
31, 1996, primarily due to an increase of $3.5 million in revenues generated
from the on-site and off-site maintenance of building systems. Energy Systems
was able to obtain several on-site and off-site maintenance contracts in an
expanded geographic area during 1996 through further development of an existing
client relationship.
Gross profit. Gross profit increased $91,000, or 1.2%, from $7.7 million
for the year ended December 31, 1995 to $7.8 million for the year ended December
31, 1996. As a percentage of revenues, gross profit decreased from 17.4% for the
year ended December 31, 1995 to 16.2% for the year ended December 31, 1996 as a
result of the changing revenue mix. In 1996, more revenues were generated from
on-site and off-site maintenance of building systems and plan and spec projects,
both of which have lower margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $411,000, or 6.3%, from $6.5 million for the
year ended December 31, 1995 to $6.9 million for the year ended December 31,
1996. This increase is due to expansion of Energy System's infrastructure in
order to support the continued growth of the business. As a percentage of
revenues, selling, general and administrative expenses decreased slightly from
14.8% for the year ended December 31, 1995 to 14.5% for the year ended December
31, 1996. Excluding the Compensation Differential of $294,000 for 1995 and
$268,000 for 1996, selling, general and administrative expenses decreased as a
percentage of revenues from 14.1% to 13.9%.
LIQUIDITY AND CAPITAL RESOURCES -- ENERGY SYSTEMS
Energy Systems used $646,000 in net cash from operating activities for the
year ended December 31, 1997. Net cash used in investing activities was $21,000.
Net cash provided by financing activities was $533,000, primarily driven by
$436,000 used to purchase treasury stock and $980,000 borrowed under long-term
debt obligations.
At December 31, 1997, Energy Systems had $4.3 million of working capital
and $2.4 million of total debt outstanding.
29
<PAGE>
<PAGE>
RESULTS OF OPERATIONS -- NEMSI
Founded in 1966, NEMSI specializes in performing design and build projects
at manufacturing and research facilities and on-site maintenance work
at nuclear power plants.
For the year ended December 31, 1997, approximately 59.8% of NEMSI's
revenues was derived from maintenance, repair and replacement services, 32.9%
was derived from design, engineering and installation services and 7.3% was
derived from on-site and off-site management of building systems.
The following table sets forth selected statement of operations data for
NEMSI, and such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................................................... $30,457 100.0% $39,357 100.0%
Cost of revenues............................................................ 23,407 76.9 31,217 79.3
------- ----- ------- -----
Gross profit................................................................ 7,050 23.1 8,140 20.7
Selling, general and administrative expenses................................ 5,448 17.8 7,297 18.6
------- ----- ------- -----
Income from operations...................................................... $ 1,602 5.3% $ 843 2.1%
------- ----- ------- -----
------- ----- ------- -----
</TABLE>
RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 -- NEMSI
Revenues. Revenues increased $8.9 million, or 29.2%, from $30.5 million for
the year ended December 31, 1996 to $39.4 million for the year ended December
31, 1997. Revenues related to design, engineering and installation projects
increased $7.4 million, primarily a result of a robust construction market due
to continued strength in the economy of the northeast United States.
Gross profit. Gross profit increased $1.1 million, or 15.5%, from $7.1
million for the year ended December 31, 1996 to $8.1 million for the year ended
December 31, 1997. As a percentage of revenues, gross profit decreased from
23.1% to 20.7%, primarily due to the impact of one project in which costs are
expected to exceed contract revenues by approximately $500,000. To a lesser
degree, the gross profit percentage decreased due to a changed sales mix, with
more revenues being generated from lower margin construction and installation
services.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.8 million, or 33.9%, from $5.4 million for
the year ended December 31, 1996 to $7.3 million for the year ended December 31,
1997. A large portion of the increase was attributable to a one-time
compensation expense charge of approximately $655,000 relating to the issuance
of shares to employees and bonuses of approximately $130,000, recognized in the
fourth quarter of 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 17.8% for the year ended December 31,
1996 to 18.6% for the year ended December 31, 1997. Excluding the stock
compensation expense recognized in the fourth quarter of 1997, selling, general
and administrative expenses as a percentage of revenues decreased from 17.8% to
16.5%.
LIQUIDITY AND CAPITAL RESOURCES -- NEMSI
NEMSI generated $809,000 in net cash from operating activities for the year
ended December 31, 1997. Net cash used in investing activities was approximately
$772,000, principally for equipment purchases. Net cash used in financing
activities was approximately $48,000, representing net repayments of debt.
At December 31, 1997, NEMSI had working capital of $1.4 million and $4.0
million of total debt outstanding (including capital leases).
30
<PAGE>
<PAGE>
RESULTS OF OPERATIONS -- LEE
Founded in 1944, Lee specializes in the design, engineering and
installation of energy and indoor environmental systems and possesses
specialized expertise relating to health care facility projects.
For the year ended December 31, 1997, approximately 64.0% of Lee's revenues
was derived from design, engineering and installation services and 36.0% was
derived from maintenance, repair and replacement services.
The following table sets forth selected statement of operations data for
Lee, and such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues........................................................ $34,639 100.0% $39,681 100.0%
Cost of revenues................................................ 26,541 76.6 30,316 76.4
------- ----- ------- -----
Gross profit.................................................... 8,098 23.4 9,365 23.6
Selling, general and administrative expenses.................... 6,663 19.3 7,325 18.5
------- ----- ------- -----
Income from operations.......................................... $ 1,435 4.1% $ 2,040 5.1%
------- ----- ------- -----
------- ----- ------- -----
</TABLE>
RESULTS FOR YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31,
1996 -- LEE
Revenues. Revenues increased $5.0 million, or 14.6%, from $34.6 million for
the year ended December 31, 1996 to $39.7 million for the year ended December
31, 1997, due to an increase of $3.0 million attributable to new construction
contracts and approximately $1.9 million attributable to maintenance, repair and
replacement services. The increase in new construction contracts was primarily
related to projects in the healthcare and energy services industries. Lee's
additional revenues from maintenance, repair and replacement services resulted
from hiring additional sales and marketing personnel to more successfully target
its selling efforts.
Gross profit. Gross profit increased $1.3 million, or 15.6%, from $8.1
million for the year ended December 31, 1996 to $9.4 million for the year ended
December 31, 1997. As a percentage of revenues, gross profit remained relatively
constant.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $662,000, or 9.9%, from $6.7 million for the
year ended December 31, 1996 to $7.3 million for the year ended December 31,
1997 as a result of additional commissions paid to new sales personnel. As a
percentage of revenues, selling, general and administrative expenses decreased
from 19.3% for the year ended December 31, 1996 to 18.5% for the year ended
December 31, 1997 as Lee was able to generate operating leverage by maintaining
relatively constant general and administrative expenses despite the increased
activity. Excluding the Compensation Differential of $1.2 million for 1996 and
$1.0 million for 1997, selling, general and administrative expenses increased as
a percentage of revenues from 15.7% to 15.9%.
LIQUIDITY AND CAPITAL RESOURCES -- LEE
Lee used $563,000 in net cash in operating activities for the year ended
December 31, 1997. Net cash used in investing activities was approximately
$301,000, principally for property and equipment purchases. Net cash provided by
financing activities was $899,000, principally from proceeds of its revolving
credit agreement and the sale of Lee's new corporate headquarters building.
At December 31, 1997, Lee had working capital of $2.7 million and $4.1
million of total debt outstanding, including capital lease obligations.
31
<PAGE>
<PAGE>
RESULTS OF OPERATIONS -- HILL YORK
Founded in 1936, Hill York specializes in the design, fabrication,
installation and service of energy and indoor environmental systems in high rise
luxury condominiums, hotels, universities and convention centers throughout
South Florida.
For the year ended December 31, 1997, approximately 76.8% of Hill York's
revenues was derived from design, engineering and installation services and
23.2% was derived from maintenance, repair and replacement services.
The following table sets forth selected statement of operations data for
Hill York, and such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
---------------------------------- ----------------------------------
1996 1997 1996 1997
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.............................. $28,667 100.0% $31,430 100.0% $23,123 100.0% $25,863 100.0%
Cost of revenues...................... 22,526 78.6 24,121 76.7 18,002 77.9 20,432 79.0
------- ----- ------- ----- ------- ----- ------- -----
Gross profit.......................... 6,141 21.4 7,309 23.3 5,121 22.1 5,431 21.0
Selling, general and administrative
expenses............................ 5,758 20.1 6,992 22.3 4,985 21.5 5,082 19.7
------- ----- ------- ----- ------- ----- ------- -----
Income from operations................ $ 383 1.3% $ 317 1.0% $ 136 0.6% $ 349 1.3%
------- ----- ------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- ----- ------- -----
</TABLE>
RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE NINE MONTHS
ENDED DECEMBER 31, 1996 -- HILL YORK
Revenues. Revenues increased $2.7 million, or 11.8%, from $23.1 million for
the nine months ended December 31, 1996 to $25.9 million for the nine months
ended December 31, 1997. This increase was primarily attributable to revenues
from two large condominium projects.
Gross profit. Gross profit increased $310,000, or 6.1%, from $5.1 million
for the nine months ended September 30, 1996 to $5.4 million for the nine months
ended September 30, 1997. As a percentage of revenues, gross profit decreased
from 22.1% for the nine months ended September 30, 1996 to 21.0% for the nine
months ended September 30, 1997. The decrease in gross profit as a percentage of
revenues was primarily attributable to the impact of one project in which costs
are expected to exceed contract revenues by approximately $125,000.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $97,000, or 1.9%, from $5.0 million for the
nine months ended September 30, 1996 to $5.1 million for the nine months ended
September 30, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 21.5% for the nine months ended September
30, 1996 to 19.6% for the nine months ended September 30, 1997 as Hill York was
able to generate operating leverage by maintaining relatively constant selling,
general and administrative expenses despite the increased activity. Excluding
the Compensation Differential of $658,000 for 1996 and $616,000 for 1997,
selling, general and administrative expenses decreased as a percentage of
revenues from 18.7% to 17.3%.
RESULTS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31,
1996 -- HILL YORK
Revenues. Revenues increased by $2.8 million, or 9.6%, from $28.7 million
for year ended March 31, 1996 to $31.4 million for the year ended March 31, 1997
as a result of additional sales and marketing efforts.
Gross profit. Gross profit increased $1.2 million, or 19.0%, from $6.1
million for the year ended March 31, 1996 to $7.3 million for the year ended
March 31, 1997. As a percentage of revenues, gross profit increased from 21.4%
for the year ended March 31, 1996 to 23.3% for the year ended March 31, 1997.
The increase in gross profit as a percentage of revenues was primarily
attributable to an improved mix of projects with higher margins.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.2 million, or 21.4%, from $5.8 million for
the year ended March 31, 1996 to $7.0 million for the year
32
<PAGE>
<PAGE>
ended March 31, 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 20.1% for the year ended March 31, 1996
to 22.3% for the year ended March 31, 1997. Excluding the Compensation
Differential of $577,000 for 1996 and $1.0 million for 1997, selling, general
and administrative expenses increased as a percentage of revenues from 18.1% to
19.0%.
LIQUIDITY AND CAPITAL RESOURCES -- HILL YORK
Hill York used $20,000 in net cash from operating activities for the
nine months ended December 31, 1997. Net cash used in investing activities was
$128,000, principally resulting from purchases of property and equipment. Net
cash used in financing activities was $54,000, primarily representing payments
of capital lease obligations and distributions to stockholders.
At December 31, 1997, Hill York had working capital of $1.0 million and
$754,000 of total debt outstanding.
RESULTS OF OPERATIONS -- AIRCOND
Founded in 1937, Aircond focuses on the maintenance, repair and replacement
of energy and indoor environmental systems. With over 130 technicians, Aircond
is one of the largest service providers of such systems in the Southeast.
From the year ended December 31, 1997, approximately 92.9% of Aircond's
revenues was derived from maintenance, repair and replacement services and 7.1%
was derived from design, engineering and installation services.
The following table sets forth selected statement of operations data for
Aircond, and such data as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, THREE MONTHS ENDED DECEMBER 31,
------------------------------------------------------- -----------------------------------
1995 1996 1997 1996 1997
--------------- --------------- --------------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $25,225 100.0% $26,830 100.0% $26,935 100.0% $5,598 100.0% $6,311 100.0%
Cost of revenues................ 17,174 68.1 17,284 64.4 17,509 65.0 3,591 64.1 4,162 65.9
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Gross profit.................... 8,051 31.9 9,546 35.6 9,426 35.0 2,007 35.9 2,149 34.1
Selling, general and
administrative expenses....... 6,273 24.9 7,487 27.9 7,731 28.7 1,841 32.9 1,909 30.3
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Income from operations.......... $ 1,778 7.0% $ 2,059 7.7% $ 1,695 6.3% $ 166 3.0% $ 240 3.8%
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
</TABLE>
RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE
MONTHS ENDED DECEMBER 31, 1996 -- AIRCOND
Revenues. Revenues increased $713,000, or 12.7%, from $5.6 million for
three months ended December 31, 1996 to $6.3 million for the three months ended
December 31, 1997 as a result of increased sales of services provided through
existing client relationships.
Gross profit. Gross profit increased $142,000, or 7.1%, from $2.0 million
for the three months ended December 31, 1996 to $2.1 million for the three
months ended September 30, 1997. As a percentage of revenues, gross profit
decreased from 35.9% for the three months ended December 31, 1996 to 34.1% for
the three months ended December 31, 1997 as a result of revenues being generated
by lower margin replacement projects.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $68,000, or 3.7%, from $1.8 million for the
three months ended December 31, 1996 to $1.9 million for the three months ended
December 31, 1997. As a percentage of revenues, selling, general and
administrative expenses decreased from 32.9% for the three months ended December
31, 1996 to 30.3% for the three months ended December 31, 1997. Excluding the
Compensation Differential of $14,000 for 1996 and $18,000 for 1997, selling,
general and administrative expenses decreased as a percentage of revenues from
32.6% to 30.0%.
33
<PAGE>
<PAGE>
RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER
30, 1996 -- AIRCOND
Revenues. Revenues remained constant at $26.8 million for the year ended
September 30, 1996 and $26.9 million for the year ended September 30, 1997.
Gross profit. Gross profit decreased $120,000, or 1.3%, from $9.5 million
for the year ended September 30, 1996 to $9.4 million for the year ended
September 30, 1997. As a percentage of revenues, gross profit decreased from
35.6% to 35.0%, due to increased labor costs.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $244,000, or 3.3%, from $7.5 million for the
year ended September 30, 1996 to $7.7 million for the year ended September 30,
1997. As a percentage of revenues, selling, general and administrative expenses
increased from 27.9% to 28.7% due to increased discretionary bonuses to
management. Excluding the Compensation Differential of $437,000 for the year
ended September 30, 1996 and $1.1 million for the year ended September 30, 1997,
selling, general and administrative expenses decreased as a percentage of
revenues from 26.3% to 24.5%.
RESULTS FOR THE YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER
30, 1995 -- AIRCOND
Revenues. Revenues increased $1.6 million, or 6.4%, from $25.2 million for
the year ended September 30, 1995 to $26.8 million for the year ended September
30, 1996. This increase in revenues was primarily attributable to successful
sales efforts targeted to obtaining more maintenance, repair and replacement
services and Aircond expanding its geographic penetration in North Carolina and
South Carolina markets.
Gross profit. Gross profit increased $1.5 million, or 18.6%, from $8.1
million for the year ended September 30, 1995 to $9.5 million for the year ended
September 30, 1996. As a percentage of revenues, gross profit increased from
31.9% to 35.6% as a result of Aircond's ability to support higher levels of
maintenance, repair and replacement services with consistent numbers of service
and repair technicians.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $1.2 million, or 19.4%, from $6.3 million for
the year ended September 30, 1995 to $7.5 million for the year ended September
30, 1996. As a percentage of revenues, selling, general and administrative
expenses increased from 24.9% for the year ended September 30, 1995 to 27.9% for
the year ended September 30, 1996 as a result of increased commissions,
management incentives and bonuses. Excluding the Compensation Differential of
$414,000 for 1996 and $437,000 for 1995, selling, general and administrative
expenses increased as a percentage of revenues from 23.2% to 26.3%.
LIQUIDITY AND CAPITAL RESOURCES -- AIRCOND
Aircond generated approximately $1.6 million in net cash from operating
activities for the year ended September 30, 1997. Net cash provided by investing
activities was approximately $238,000, principally resulting from sales of
short-term investments. Net cash used in financing activities was $1.4 million,
representing repayment of capital lease obligations of approximately $653,000
and distributions to stockholders of approximately $772,000.
At September 30, 1997, Aircond had working capital of $5.1 million and $2.3
million of total debt outstanding.
34
<PAGE>
<PAGE>
BUSINESS
INTRODUCTION
Enfinity was formed by the Founding Companies to provide energy and indoor
environmental systems and services to commercial, industrial and institutional
clients. The Company provides a broad range of services throughout the life
cycle of a client's energy and indoor environmental systems, including: (i)
maintenance, repair and replacement; (ii) design, engineering and installation;
and (iii) on-site and off-site management of building systems, including control
and monitoring systems.
Seven of the eight Founding Companies have worked together in industry peer
groups for over 10 years. All of the Founding Companies are 'best-of-class'
service providers with specialized and complementary expertise and have been
recognized by industry organizations for their high-quality service and
innovative client solutions. Six of the eight Founding Companies have been named
'Commercial Contractor of the Year,' an award presented annually by Contracting
Business magazine to the most progressive and professional organization in the
commercial HVAC business. The Company has established strategic partnerships
with several utilities and other energy providers as a means to provide
innovative and cost effective energy and indoor environmental solutions to
commercial utility consumers. The Founding Companies have experienced
substantial growth, with historical combined revenues increasing from $245.6
million for fiscal year 1995 to $364.8 million for fiscal year 1997,
representing a 21.9% compound annual growth rate. The Company's business and
internal growth strategies, as well as its emphasis on strategic partnerships
and acquisitions, are focused on achieving its goal of becoming a leading
national provider of energy and indoor environmental systems and services.
INDUSTRY OVERVIEW
The commercial, industrial and institutional HVAC and related services
industry is large, growing and highly fragmented. In 1996, over 10,000 companies
provided over $35 billion in commercial, industrial and institutional HVAC
services. Factors fueling the growth of the industry include: (i) an increasing
focus on air quality and internal environmental control in a growing number of
sealed commercial buildings; (ii) the aging of the installed base of energy and
indoor environmental systems, which has increased the demand for maintenance,
repair and replacement services; (iii) the increasing automation, sophistication
and complexity of energy and indoor environmental systems; (iv) government
restrictions on the use of refrigerants commonly used in older energy and indoor
environmental systems; (v) a desire by companies to outsource their energy and
indoor environmental systems services as they focus on their core competencies;
and (vi) an increasing focus by companies on managing costs and the ability to
achieve energy savings by replacing less efficient systems.
There are two broad segments of the HVAC and related services industry: (i)
the maintenance, repair and replacement segment, representing approximately 66%
of industry revenues; and (ii) the design, engineering and installation segment,
representing approximately 34% of industry revenues. Maintenance and repair
services are typically performed on either a fixed schedule under service
contracts or on an as needed basis in response to service calls. Replacement
services include full or partial replacement of HVAC and other energy and indoor
environmental systems, or components thereof. Design, engineering and
installation projects are obtained either on a negotiated design and build basis
('design and build') or on a low bid or plan specification basis ('plan and
spec'). In design and build projects, the service provider works directly with
the end user of the system and designs, engineers and installs a system
specifically tailored to the client's needs. In plan and spec projects, the
system is designed by an architect or engineer, who has primary responsibility
for the client relationship and who selects an energy and indoor environmental
systems and services firm to assemble and install the system based on a
competitive bid process. Typically, design and build projects require a higher
level of technical expertise, result in closer client relationships and create
greater opportunities to provide value-added services that often generate higher
margins.
The two broad segments of the industry are complemented by a wide range of
outsourced facility services. As businesses focus on their core competencies and
as indoor environmental systems become more expensive, complex and technical,
clients are increasingly outsourcing their HVAC and other mechanical service
needs to experienced providers of such services. Such providers offer an array
of
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outsourced mechanical services and expertise, including the ongoing operation,
maintenance and monitoring of energy and indoor environmental systems and the
performance of related energy management functions. Outsourced facility
operation and maintenance services are generally provided for a monthly or
quarterly fee, and are often a source of significant new business opportunities
to provide additional services to the client, including maintenance, repair and
replacement services and design, engineering and installation services.
An important factor affecting the energy and indoor environmental services
industry is the deregulation of the U.S. gas and electric utility industries. As
these industries become further deregulated, the Company anticipates that
utilities and other energy providers will continue to establish strategic
partnerships with providers of energy and indoor environmental systems and
services in order to attract utility customers in an increasingly competitive
market. These partnerships are offering customers a broad range of services and
utilities on a variable cost per unit basis without the need for customers to
make significant capital expenditures on energy and indoor environmental
systems. The Company believes that these strategic partnerships will decrease
energy costs and improve marketing and customer service, resulting in increased
demand for energy and indoor environmental systems and services.
The energy and indoor environmental services industry has been undergoing
significant consolidation. Factors fueling consolidation include: (i) the
fragmented nature of the industry, which has been typified by small owner
operated businesses that are located in a single geographic area and that have
limited access to capital for modernization and expansion; (ii) the increasing
desire of companies to limit the number of energy and indoor environmental
service companies with which they contract; (iii) the threat of increased
competition from larger entities with greater financial resources, resulting in
part from the deregulation of the U.S. gas and electric utility industries; and
(iv) consolidation in the ownership and management of commercial real estate.
BUSINESS STRATEGY
The Company's goal is to create a leading national provider of energy and
indoor environmental systems and services for commercial, industrial and
institutional clients. In order to achieve this goal, the Company has a focused
business strategy based upon the following key principles:
Create a Single Source Provider of Energy and Indoor Environmental Systems
and Services. The Company intends to capitalize on the increasing desire of
clients for a single source of service for all of their energy and indoor
environmental systems and services requirements. Upon completion of this
Offering, the Company will be able to provide clients with a broad range of
bundled and complementary services, including the design, engineering and
installation of energy and indoor environmental systems, the subsequent
maintenance and repair of such installed systems, the monitoring and maintenance
of internal air quality control levels and the eventual replacement of equipment
at the end of each system's useful life. The Company believes that by focusing
on contracts to operate and maintain all of a client's energy and indoor
environmental systems and by providing a broad array of complementary services,
it will generate significant additional revenues from its projects, realize a
recurring stream of revenues and continue to foster long-term relationships with
its clients.
Strategic Partnerships. The Company will seek to form additional strategic
relationships with utilities and other energy providers to satisfy the full
range of a client's energy and indoor environmental systems needs. For example,
the Company and its strategic partners may: (i) provide a client with gas,
electrical power, cooled air or water, heat or lighting; (ii) design, install
and maintain the client's energy and indoor environmental systems; (iii) operate
central energy plants; (iv) provide financing for the design, engineering and
installation of new energy and environmental systems; and (v) monitor the indoor
air quality of the client's facility. The Company anticipates that these
partnerships will result in lower energy costs and greater client satisfaction
as a client's full range of energy and indoor environmental service needs are
provided and paid for through a single source. By creating an attractive
alternative to the traditional means of satisfying a client's needs, the
Company believes that strategic partnerships will provide the Company with an
advantage over many of its competitors, additional business opportunities and
increased revenues.
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The following is an example of the benefits of strategic partnering among
energy providers and providers of indoor environmental systems and services:
Lee has a strategic relationship with Enron, an unregulated energy
services provider, and Energy Capital Partners Co. ('Energy Capital'), a
financing entity. Lee's client, a Nashville-based cloth fabrics
manufacturer, required a supply of compressed air and chilled water as part
of its manufacturing process. Lee's price to design and build the
installation to provide these utilities was approximately $3 million,
including the required air compressors and chillers. Rather than the client
making this capital investment itself, the system was financed by Energy
Capital and purchased by Enron, which paid the design and installation cost
to Lee. As a result of this arrangement, Lee's client will make monthly
payments to Enron that includes the costs of financing the system, the
purchase of the required utilities, in this case compressed air, chilled
water and power sources, and the maintenance and repair services that Lee
is to provide through a 10-year service agreement. From such monthly
payments, Enron pays the financing costs of the $3 million design and
installation fee to Energy Capital and the payments due under the service
agreement to Lee.
The Company anticipates that as deregulated utilities seek to access clients
directly, they will enter the energy and indoor environmental systems and
services market through these types of strategic partnerships. The Company
intends to seek out and participate in a variety of strategic partnerships with
utilities.
Leverage Founding Company Engineering and Technical Expertise. Each of the
Founding Companies has a specialized expertise and a strong reputation in its
offerings of energy and indoor environmental systems and services. Hill York,
for example, has extensive experience in the design, engineering and
installation of energy and indoor environmental systems in high rise
condominiums and hotels. Mechanical Services and Air Systems have specialized
expertise in the design, engineering and installation of indoor environmental
systems for high tech industrial clients, including the highly specialized
construction of 'clean rooms,' and Air Systems has technical expertise with high
purity and toxic gas process piping. The Company believes that by leveraging the
engineering and technical expertise of the Founding Companies and subsequently
acquired businesses, the Company will be able to more effectively secure new
contracts, better service existing client needs and continue to develop
significant long-term client relationships.
Focus on High Quality Client Service. The Company believes that maintaining
a high level of service and satisfaction is integral to attracting and retaining
clients. The Founding Companies have a strong commitment to quality and client
satisfaction and conduct regular client performance reviews. The Company
believes that the quality of its services enables it to establish and maintain
long-term relationships with many of its clients. The Company further believes
that its reputation for creating high quality solutions directed at a client's
specific requirements is an important differentiating factor from its
competitors and enables the Company to compete on a basis other than price.
Attract, Train and Retain Highly Qualified Technicians and Engineers. The
Company is focused on attracting and retaining a highly trained and motivated
workforce in order to consistently deliver innovative client solutions and
high-quality service. The Company's strategy is to become the employer of choice
in each of the markets in which it operates by offering its personnel: (i)
comprehensive ongoing internal technical training programs throughout their
career; (ii) competitive compensation and employee benefits; (iii) career
development opportunities; and (iv) equity participation in the Company's
success. The Company believes that it has the training expertise and capital
resources to better attract and retain a highly qualified work force than its
competitors.
Operate With a Decentralized Management Strategy. The Company believes that
the experienced management teams at the Founding Companies have a valuable
understanding of their respective markets and businesses and have existing
client relationships upon which they will continue to capitalize. Accordingly,
the Company expects to continue to operate with a decentralized management
strategy. Senior management at the Founding Companies will remain empowered to
make most of the day-to-day operating decisions at each location and will be
primarily responsible for the profitability and growth of their business.
Although the Company intends to allow management at the Founding Companies to
operate with a high degree of autonomy, the Company believes that regular
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communication between the individual businesses and the Company's executive
management team will be integral to realizing the benefits afforded by the
consolidation of these businesses into a single company.
GROWTH STRATEGY
The Company believes that there are significant opportunities to expand its
business and further penetrate the market for energy and indoor environmental
systems and services. The significant elements of the Company's growth
strategies are as follows:
Internal Growth. While the Company intends to acquire additional energy and
indoor environmental systems service companies, strong internal growth remains
the core of the Company's growth strategy. The key elements for such internal
growth are as follows:
Cross-Selling of Client Services. The Company believes it will be able
to increase its revenues from existing clients by taking advantage of
cross-selling opportunities among the Founding Companies and other acquired
companies. Through interaction at industry peer group meetings and their
reputations as 'best-of-class' service providers, certain of the Founding
Companies have already begun to leverage their client relationships by
recommending each other for significant business opportunities. For
example, in connection with Lee's mechanical construction contract to
design, build and install the air conditioning, plumbing and process piping
systems for an industrial plant of SKF U.S.A., Inc. ('SKF'), a motor
bearings manufacturer in South Carolina, Lee sought a reliable regional
service provider to manage the one-year warranty offered by Lee in
connection with the project. Lee chose Aircond to manage such warranty and,
based upon the subsequent relationship that developed between Aircond and
SKF, Aircond is currently negotiating a service contract with SKF for the
ongoing maintenance and repair of the installed systems beyond the one-year
warranty period.
Expand Market Coverage. The Company believes that significant demand
exists from large national companies to utilize the services of a single
company capable of providing comprehensive energy and indoor environmental
systems and services on a regional or national basis. Many of the Founding
Companies already provide local or regional coverage to companies with
locations nationwide, such as commercial real estate developers and
managers, real estate investment trusts, hotels and retail establishments,
including a number of Fortune 500 companies. The Company believes these
existing relationships can be expanded as the Company develops a nationwide
network. In addition, the Company may open new offices in order to meet the
potential needs of new and existing clients and local market demand.
Achieve Operating Efficiencies through Best Practices and Economies of
Scale. The Company believes that there are significant opportunities to
achieve operating efficiencies and cost savings and to provide superior
client service through the adoption of 'best practices' operating programs.
The Company intends to establish a program in which it will periodically
review its operations and training programs at the local and regional
levels in order to identify those practices that can be successfully
implemented throughout its nationwide operations. For example, the Company
intends to use the highly regarded training program of Aircond as a model
for all the Founding Companies and other acquired companies. The Company
also expects to achieve operating efficiencies and cost savings through
purchasing economies of scale. The Company intends to use its increased
purchasing power to gain volume discounts in areas such as system
components, raw materials, service vehicles, telecommunications,
advertising, bonding and insurance.
Growth Through Acquisitions. The Company intends to capitalize on the
highly fragmented nature of the energy and indoor environmental systems and
services industry by implementing a strategic acquisition program following
this Offering. The Company will seek to acquire companies that are
'best-of-class' local or regional providers of energy and indoor
environmental systems and services. Together with the Founding Companies,
such acquisitions will serve as platforms for further growth and
consolidation and will have the client base, technical skills and
infrastructure necessary to be a core business into which other companies
can be consolidated. The Company also will attempt to leverage the existing
infrastructure by pursuing 'tuck-in' acquisitions of smaller
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companies whose operations can be integrated into a platform company. In
addition, in order to expand its market penetration and range of services
offered, the Company will selectively seek to acquire other
well-established energy and indoor environmental services businesses that
provide services complementary to those provided by the Company.
The Company believes that the opportunity to be acquired by the
Company will be attractive to many providers of energy and indoor
environmental systems and services. The Company offers owners of potential
acquisition candidates: (i) significant opportunities to enhance the growth
of their businesses through cross-selling the Company's wide range of
services; (ii) access to the Company's technical and engineering expertise;
(iii) the Company's financial strength and visibility as a public company;
(iv) a decentralized management structure; (v) the ability to compete in a
rapidly consolidating environment; and (vi) near-term liquidity. The
Company believes that the experience, reputation and relationships of the
Founding Companies' management will be of significant value as the Company
seeks additional acquisition candidates.
As consideration for future acquisitions, the Company intends to use
various combinations of its Common Stock, cash and notes. Following the
completion of this Offering, the Company intends to register 5,000,000
additional shares of Common Stock under the Securities Act for its use in
connection with future acquisitions.
OPERATIONS AND SERVICES PROVIDED
The Company provides energy and indoor environmental systems and services
to commercial, industrial and institutional clients. The Company's services are
provided throughout the life cycle of a client's energy and indoor environmental
systems and include: (i) maintenance, repair and replacement; (ii) design,
engineering and installation; and (iii) on-site and off-site management of
building systems, including automated control and monitoring systems. The
Company develops long-term relationships with its clients by acting as a single
source provider of a broad range of energy and indoor environmental services,
and by providing these services in a high quality and reliable manner. The
development of long-term client relationships often results in both a recurring
revenue stream from maintenance services, and ongoing opportunities to provide
repair and replacement services and initiate new design, engineering and
installation projects. For the year ended December 31, 1997, the Company
generated approximately $193.0 million in combined revenues from maintenance,
repair and replacement services, which represented 52.9% of the Company's total
combined revenues; approximately $133.5 million in combined revenues from
design, engineering and installation services, which represented 36.6% of the
Company's total combined revenues; and approximately $38.3 million in combined
revenues from management of on-site and off-site building systems, which
represented 10.5% of the Company's total combined revenues.
Maintenance, Repair and Replacement Services. The Company provides
maintenance, repair and replacement services either pursuant to a service
agreement or in response to service calls. The Company's maintenance, repair and
replacement services typically include certified evaluation and testing of
system performance, cleaning and replacement of filters and other components and
retrofitting existing building energy and indoor environmental systems. The
Company replaces and upgrades filtration, air distribution, ventilation, air
pre-treatment, building automation and other systems.
The Company's service offerings involve working with a client to develop a
preventive maintenance program that details all of the equipment to be serviced
and generates a schedule of regular service calls. Company technicians then make
scheduled visits, servicing the equipment and performing repair or replacement
services as needed. Service offerings include remote monitoring of temperature,
pressure, humidity and air flow through the use of direct digital control
technology. If the system is not operating within the specifications established
by the client and cannot be remotely adjusted, a service crew is dispatched to
analyze and repair the system as appropriate. Maintenance calls not covered
under an ongoing service agreement generally are coordinated by client service
representatives or dispatchers who use computer and communications technology to
process orders, arrange service calls, communicate with clients, dispatch
technicians and generate invoices.
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The following is an example of the maintenance, repair and replacement
services offered by the Company:
Aircond provides services to a 14 building, one million square foot,
office complex located in Atlanta, Georgia. This annual contract provides
the client an on-site technician dedicated to the client for 40 hours a
week. The technician performs daily preventive maintenance procedures on
the many different energy and indoor environmental systems at the office
complex and addresses any problems that may arise with such systems. The
on-site technician is also capable of using the Andover Direct Digital
Control system (installed in all of the buildings serviced by Aircond) to
troubleshoot problems and change temperature settings and schedules
relating to the energy and indoor environmental systems at the office
complex. In addition to mechanical and digital control support, Aircond
performs water treatment services and refrigerant management services under
this contract. On a monthly basis, Aircond's water treatment technicians
sample the water used in the heating and cooling systems and make
adjustments to the chemical treatment schedule as needed. Optimizing
chemical treatment of water systems maintains proper efficiency levels and
extends the life of the equipment. The client also relies on Aircond to
store, maintain and document the use of chlorofluorocarbon ('CFC')
refrigerants. The use and storage of these types of refrigerants is
regulated by the EPA.
Service agreements result in recurring revenue streams and often provide a
source of new business opportunities for the Company. The Company's service
agreements typically have terms of one to three years, with automatic annual
renewals, and are terminable by either party upon 30 to 60 days' notice. Service
agreements are generally billed on a fixed fee basis per month or quarter, with
additional fees charged for repair or replacement services. Service calls not
covered under ongoing maintenance programs are billed on a time and materials
basis, based on a rate schedule established by the Company.
Design, Engineering and Installation Services. The Company designs,
engineers and installs a variety of complex energy and indoor environmental
systems for its commercial, industrial and institutional clients, including
comfort heating and cooling systems, process cooling systems, high purity
filtration systems, industrial ventilation systems, control and monitoring
systems and industrial process piping. The Company's design, engineering and
installation projects are obtained either on a design and build or plan and spec
basis.
In a design and build project, the Company is a member of a team that works
closely with the client to understand its energy and indoor environmental needs
in order to engineer and design an entire system to be installed within an
existing or new facility. Company engineers and other technical personnel
analyze the requirements of the proposed system and estimate the time,
materials, equipment and labor required to complete the project. The Company
also considers other indoor environmental features that may be desirable for a
particular client, such as advanced automated monitoring devices or specialized
indoor air quality control technology. The Company negotiates the final design,
cost and timing of the design and build project with the client and enters into
a definitive agreement.
In a plan and spec project, engineers or architects design the system and
then solicit bids for the assembly and installation of the system. Companies are
selected primarily on a lowest bid basis. The Company prefers to concentrate on
design and build, rather than plan and spec, projects because the Company
believes that design and build projects generally require a higher level of
technical expertise, result in closer client relationships and create greater
opportunities to provide value-added services that often generate higher
margins. However, the plan and spec projects in which the Company is engaged
often give the Company an entry point to provide future maintenance, repair and
replacement services as well as enhance the Company's reputation within a local
market.
Materials and equipment required for a typical design, engineering and
installation project include ductwork, chillers, compressors, blowers, cooling
towers and air handling equipment, as well as pipes and pumps required to
connect the component parts of the system. The Company performs design,
engineering and installation services in commercial office buildings, high rise
apartment buildings, hotels, government and educational facilities, hospitals
and manufacturing plants. Most of the Company's commercial and industrial
design, engineering and installation projects take between one month and 18
months to complete. Projects are billed as phases are completed or as costs are
incurred.
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The Company designs, engineers and installs process cooling systems, high
purity filtration systems, industrial ventilation systems, industrial process
piping and control and monitoring systems. Process cooling systems are used
primarily in industrial facilities to provide heating or cooling to precise
temperature and humidity standards for products being manufactured and for
manufacturing equipment. High purity filtration systems are used in facilities
requiring specific air quality standards and industrial ventilation systems are
used to capture and dispose of airborne particulate. Industrial process piping
is used in manufacturing facilities to convey raw materials, utilities and
finished products. Control systems are used in order to maintain pre-established
temperature or climate standards for commercial, industrial or institutional
facilities. These systems use direct digital technology integrated with computer
terminals. Control systems are capable not only of controlling a facility's
entire HVAC system, often on a room-by-room basis, but can be programmed to
integrate energy management, security, fire, card key access, lighting and
overall facility monitoring. Diagnosis of potential problems and remote
adjustment of the control system can be performed from either an on-site or
off-site computer terminal.
The following are examples of design, engineering and installation projects
performed by the Company:
Brandt has undertaken an $11.7 million design and build renovation
project for Texas Christian University ('TCU') in Fort Worth, Texas. This
project, which is 95% complete, includes the design and construction of a
15,000 square foot, 5,600 ton central utility plant which uses ice storage
for demand side utility management. This plant serves more than 20 academic
and residence halls through approximately 10,000 feet of underground
piping. Additionally, 40 new air handling units were installed for improved
indoor air quality. A new high efficiency lighting system was installed
with a new high voltage electrical system and over 26,000 light fixtures.
By engaging Brandt on this project rather than pursuing an alternative
proposed by a competitor, TCU has saved more than $1.5 million in capital
costs. TCU is also projecting annual operating and maintenance cost savings
of more than $600,000.
Mechanical Services installed the mechanical systems for the latest
expansion of Sea World of Florida, a Busch Entertainment complex in
Orlando, Florida. This new attraction, 'Atlantis-The Lost Continent,'
opened in April 1998 and is one of the largest single projects ever
developed by Busch Entertainment at the Florida site. Mechanical Services
provided all of the comfort heating and cooling systems for the project
along with the process utilities, such as compressed air and hydraulic
systems, required to support the ride system that operates within the
structure.
Management of Building Systems. As businesses focus on their core
competencies, and as energy and indoor environmental systems become more
expensive, complex and technologically oriented, clients are increasingly
outsourcing their energy and indoor environmental systems and other mechanical
systems needs to experienced providers of such services. In response to this
demand, the Company offers an array of outsourced mechanical services and
expertise provided by qualified technicians, including ongoing operation,
maintenance and monitoring of indoor energy and environmental systems and
performance of related energy management functions. Outsourced facility
operations and maintenance services are generally provided pursuant to a
management agreement and are often a source of significant new opportunities to
provide additional services to the client.
The following are examples of the management of building systems services
offered by the Company:
Energy Systems provides outsourced facility services to the Prudential
Center Complex (the 'Complex') in Boston, Massachusetts. The Complex
consists of approximately six million square feet located over 31 acres and
includes three 26-story apartment buildings, a 30-story office building,
three blocks of retail outlets and the 52-story Prudential Tower. In 1984,
Energy Systems was hired to perform a broad range of outsourced facility
services for the Complex, including maintenance of HVAC systems, operation
of the steam-powered centrifugal chillers and operation of the energy
management system and all related control systems. In addition, Energy
Systems maintains the infrastructure of the Complex and provides a variety
of mechanical services, including maintenance of electrical and plumbing
systems and carpentry work. To fulfill its
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obligations to the Complex, Energy Systems uses an on-site staff of 50
full-time engineers, service technicians, electricians, plumbers and
carpenters.
NEMSI provides outsourced facility services to the Bristol-Myers
Squibb facility in Wallingford, Connecticut. The facility consists of
approximately 800,000 square feet and is a state-of-the-art pharmaceutical
research building with more than 100 research laboratories. The facility
has a separate building that operates as a central plant, providing all of
the utilities to the entire facility. NEMSI provides a technical workforce
to maintain and operate all mechanical systems in the facility, including a
24-hour-a-day on-site maintenance crew for the central utility plant. NEMSI
also provides a daily maintenance crew at the main research facility for
mechanical systems operations, including building automation systems and
building security systems.
The Company's facility management service agreements typically have terms
of one to three years and are terminable by either party upon 30 to 60 days'
notice. Such agreements are billed on a fixed fee basis per month, with separate
fees charged if additional services are required.
CLIENTS
The Company's client base includes a broad array of commercial, industrial
and institutional users of energy and indoor environmental systems and services.
Selected clients to which the Company has provided services in the past 12
months include: Devcon, Hitachi, Fujitsu, Texas Christian University, Sprint,
Lucent Technologies, Harvard College, Union Carbide, Pfizer, General Electric,
General RE, Nissan Motor Manufacturing, Inc., Prudential Center (Boston),
Bristol-Myers Squibb, Novellus, Whirlpool Corporation, Time Warner, Hewlett
Packard, Cisco Systems and Sea World.
Consistent with its growth strategy, the Company believes that its success
is dependent on its ability to foster long-term relationships with its clients.
The Company has found that these well-developed relationships often lead to
significant new opportunities to provide additional services to clients. The
Company does not seek to be the lowest cost service provider in a given market
in which it operates. Instead, it focuses on maximizing client satisfaction by
providing a full complement of high-quality services to clients in a timely and
reliable fashion.
For the year ended December 31, 1997, the Company's top 10 clients
accounted for 28.6% of the Company's combined revenues. No single client
accounted for as much as 5.0% of the Company's combined revenues, except for
Devcon, a general contractor, which accounted for 12.5% of the Company's
combined revenues. The Company generated revenues of over $1 million from
52 different clients in the year ended December 31, 1997.
SOURCES OF SUPPLY
The raw materials and components used by the Company include HVAC system
components, ductwork, steel, sheet metal and copper tubing and piping. These raw
materials and components are generally available from a variety of domestic or
foreign suppliers at competitive prices. Delivery times are typically short for
most raw materials and standard components, but during periods of peak demand
may take a month or more to obtain. Chillers for large units typically have the
longest delivery time and generally have lead times of up to six months. The
major components of the Company's HVAC systems are compressors and chillers that
are manufactured primarily by York Heating and Air Conditioning Corporation
('York'), Carrier Corporation ('Carrier') and Trane Air Conditioning Company
('Trane'). The Company's major suppliers of control systems are Honeywell, Inc.,
Johnson Controls, Inc., York, Automated Logic Controls, Trane Tracer and Andover
Control Corporation.
SALES AND MARKETING
As of March 31, 1998, the Company had approximately 100 marketing and sales
personnel. The Company intends to market its services through the sales forces
at each of the Founding Companies. This approach will allow each Founding
Company to market its services independently or in combination to provide
solutions to a client's specific energy and indoor environmental systems needs.
The senior executives of the Founding Companies have historically been the
persons principally
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responsible for sales and marketing at such companies and will continue to act
in this capacity. The Company intends to appoint a Vice President of Marketing
to coordinate marketing efforts on a Company-wide basis and promote
cross-selling among the Founding Companies and any other acquired companies. The
Company also intends to add sales and marketing personnel at the Founding
Company level to assist senior executives in increasing the number of new
clients and the amount of business generated from existing clients.
The Company generates sales leads through referrals from clients, responses
to requests for proposals, strategic partnerships with complementary companies,
industry seminars, trade shows, direct telephone and mail campaigns,
advertisements in trade journals and Internet websites and associated links. In
addition, the Company intends to leverage the experience and reputation within
the energy and indoor environmental systems and services industry of the senior
management of the Founding Companies.
RECRUITING, TRAINING AND RETENTION
The Company's future success will depend, in part, on its ability to
continue to attract, develop, motivate and retain qualified service technicians.
The Company believes that its success in retaining qualified employees will be
based on the quality of its recruiting, training, compensation, employee
benefits programs and opportunities for advancement. The Company recruits at
colleges and universities for energy and environmental engineers. The Company
recruits its technicians at local technical schools and community colleges,
where students focus on learning basic energy and indoor environmental systems
and services skills.
The Company places a strong emphasis on training, motivating and retaining
its employees. The Company intends to use a highly regarded training program
developed by Aircond as a model for all the Founding Companies and other
acquired companies. This formalized six-year training program includes classroom
and laboratory instruction two days per month during the fall and winter months
in a variety of theoretical and practical course offerings. Technicians are paid
for classroom time, which also focuses on safety programs and client relations
skills. Service technicians are also closely supervised by experienced field
supervisors to develop their skills.
COMPETITION
The Company's industry is highly competitive. The Company believes that the
principal competitive factors in the commercial, industrial and institutional
markets for energy and indoor environmental systems and services are: (i)
long-term client relationships; (ii) quality, timeliness and reliability of
services provided; (iii) range of services provided; and (iv) market share and
visibility. To a lesser degree, the Company competes on price; however, the
Company does not seek to be the lowest cost system or service provider in the
markets in which it operates, focusing instead on maximizing client satisfaction
by providing a full complement of high-quality services to clients in a timely
and reliable fashion. The Company believes that its strategy of becoming a
leading national provider of energy and indoor environmental systems and
services directly addresses these factors. Specifically, the Company's strategy
to focus on highly consultative design and build installation services and
maintenance, repair and replacement services, as well as its strategy to operate
on a decentralized basis, should promote the development and strengthening of
long-term client relationships. In addition, the Company's focus on attracting,
training and retaining quality engineers and technicians by using professionally
managed recruiting, training and benefits programs should allow it to
competitively offer high quality, comprehensive energy and indoor environmental
systems and services. The Company's strategy to become a single source provider
of such systems and services for its clients exemplifies the Company's
commitment to offering a wide range of integrated services and environmental
solutions.
Many of the Company's competitors are relatively small, owner-operated
companies that typically operate in a limited geographic area. Certain of these
companies are affiliated with the owners or operators of the facilities in which
the Company provides its services. The Company also competes with large HVAC
equipment manufacturers, such as Carrier, Trane and Honeywell. In addition, the
Company is increasingly encountering competition from unregulated affiliates of
public utilities. Certain
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of the Company's competitors and potential competitors may have greater
financial resources than the Company to finance acquisition and development
opportunities, to pay higher prices for the same opportunities or to develop and
support their own operations.
The fragmented nature of the energy and indoor environmental systems and
services industry and the trend toward consolidation will affect the market for
potential acquisitions. There are currently several public companies that are
focused on providing energy and indoor environmental systems and services in
some of the same service lines provided by the Company and whose strategy is to
consolidate similar service providers on a regional or national basis. With
other companies seeking to make acquisitions in an effort to consolidate, the
Company will encounter significant competition as it attempts to implement its
acquisition strategy.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state and local
laws and regulations, including: (i) licensing requirements applicable to
service technicians; (ii) building and HVAC codes and zoning ordinances; (iii)
laws and regulations relating to consumer protection; and (iv) regulations
relating to worker safety and protection of the environment. The Company
believes it has all required licenses to conduct its operations and is in
substantial compliance with applicable regulatory requirements. Failure of the
Company to comply with applicable regulations could result in substantial fines
or revocation of the Company's operating licenses.
Many state and local regulations governing the HVAC services trades require
permits and licenses to be held by individuals. In some cases, a required permit
or license held by a single individual may be sufficient to authorize specified
activities for all the Company's service technicians who work in the state or
county that issued the permit or license. The Company intends to implement a
policy to ensure that, where possible, any such permits or licenses that may be
material to the Company's operations in a particular geographic region are held
by at least two Company employees within that region. In Florida, warranties
provided for in the Company's residential service agreements subject the Company
and such agreements to some aspects of that state's insurance laws and
regulations. Specifically, the Company is required to maintain funds on deposit
with the Florida Office of Insurance Commissioner and Treasurer, the amount of
which is not material to the Company's business. The Company is in compliance
with these deposit requirements.
The Company's operations are subject to numerous federal, state and local
environmental laws and regulations, including those governing the use and
handling of refrigerants. These laws are administered by the United States
Environmental Protection Agency, the Coast Guard, the Department of
Transportation and various state and local governmental agencies. The technical
requirements of these laws and regulations are becoming increasingly complex,
and the costs of complying with them can be significant. Federal and state
environmental laws include statutes intended to allocate the cost of remedying
contamination among specifically identified parties. The Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ('CERCLA' or
'Superfund') can impose strict, joint and several liability on past and present
owners or operators of facilities at, from or to which a release of hazardous
substances has occurred, on parties who generated hazardous substances that were
released at such facilities and on parties who arranged for the transportation
of hazardous substances to such facilities. A majority of states have adopted
Superfund statutes comparable to, and in some cases more stringent than, CERCLA.
If the Company were to be found to be a responsible party under CERCLA or a
similar state statute, the Company could be held liable for all investigative
and remedial costs associated with addressing such contamination, even though
the releases were caused by a prior owner or operator or third party. In
addition, claims alleging personal injury or property damage may be brought
against the Company as a result of alleged exposure to hazardous substances
resulting from the Company's operations.
The most significant environmental law that the Company's operations are
subject to is the Clean Air Act, which governs air emissions and imposes
specific requirements on the use and handling of CFCs and certain other
refrigerants. Clean Air Act regulations require the certification of service
technicians involved in the service or repair of equipment containing these
refrigerants and also regulate the containment and recycling of these
refrigerants. These requirements have increased the Company's
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training expenses and expenditures for containment and recycling equipment. The
Clean Air Act is intended ultimately to eliminate the use of CFCs in the United
States and to require alternative refrigerants to be used in replacement HVAC
systems. As a result, the number of conversions or replacements of existing HVAC
systems which use CFCs to systems using alternative refrigerants is expected to
increase.
EMPLOYEES
As of March 31, 1998, the Company had approximately 3,200 employees,
including approximately 213 management personnel, approximately 2,130 engineers
and service and installation technicians, approximately 102 sales personnel and
approximately 230 administrative personnel. In the course of performing
installation work, the Company may use the services of subcontractors. Five of
the Founding Companies are parties to collective bargaining agreements with
unions which cover, in the aggregate, approximately 1,600 employees. Such
collective bargaining agreements have terms expiring at various times through
April 2002. Under certain of these agreements, payments are made to multi-
employer pension plans. The Company believes its relationships with its
employees and union representatives are satisfactory.
FACILITIES AND VEHICLES
The Company has 26 facilities in 10 states, three of which are owned and 23
of which are leased with remaining lease terms ranging from month-to-month to 20
years. The Company leases or owns approximately 400,000 square feet of
commercial property.
The Company operates a fleet of approximately 1,040 service trucks, vans
and support vehicles, of which approximately 610 are leased and approximately
430 are owned.
After the closing of this Offering, the Company will lease its principal
executive and administrative offices in Atlanta, Georgia and is currently in the
process of obtaining office space for this purpose.
Following the Mergers, certain of the Founding Companies will continue to
lease operating space from certain stockholders of the Founding Companies, some
of whom are or will become executive officers and directors of the Company upon
the consummation of this Offering. See 'Certain Transactions -- Other
Transactions.'
LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. The Company is
not currently involved in any litigation, nor is the Company aware of any
threatened litigation, that the Company believes is likely to have a material
adverse effect on its business, financial condition or results of operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information concerning those persons who are
or upon the consummation of this Offering will become the Company's directors
and executive officers. In addition to the persons named as directors below, it
is anticipated that four additional independent directors will be elected to the
Company's board at or prior to the consummation of the Offering. The Company is
in the process of selecting these four individuals.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- -----------------------------------------------------------------------------
<S> <C> <C>
Rodney C. Gilbert............ 58 Chairman of the Board and Chief Executive Officer; Director
Marty R. Kittrell(1)......... 41 Executive Vice President and Chief Financial Officer; Director
William M. Dillard........... 50 President and Chief Operating Officer; Chief Executive Officer -- Mechanical
Services; Director
Alan L. Barnes, Sr.(1)....... 55 President and Chief Executive Officer -- Aircond; Director
John W. Davis(1)............. 43 President -- Air Systems; Director
Robert S. Lafferty(1)........ 63 Chairman of the Board -- Hill York; Director
William B. Lee(1)............ 38 President and Chief Executive Officer -- Lee; Director
Charles P. Reagan(1)......... 48 President and Chief Executive Officer -- NEMSI; Director
Anthony I. Shaker(1)......... 54 President and Chief Executive Officer -- Energy Systems; Director
Mark A. Zilbermann(1)........ 45 President -- Brandt; Director
William J. Lynch............. 56 Director
</TABLE>
- ------------
(1) Appointment as a director will become effective upon the consummation of
this Offering.
Rodney C. Gilbert has been Chairman of the Board and Chief Executive
Officer of the Company since May 1998. Since December 1997, Mr. Gilbert has
served as a consultant to the Company and has assisted with its business
strategy and development. Mr. Gilbert was President and Chief Executive Officer
of Rust International, Inc., an environmental services corporation, from January
1993 through March 1997. He also served as Vice President, Technology
Development for WMX Technologies, Inc., the parent company of Rust
International, Inc., from February 1995 to December 1996. From November 1985 to
January 1993, Mr. Gilbert served as President and Chief Operating Officer of
Wheelabrator Technologies Inc., an environmental services company that is a
subsidiary of WMX Technologies, Inc. Mr. Gilbert currently serves on the Board
of Directors of AmSouth Bancorporation. Mr. Gilbert received a bachelor of
science degree in engineering from the University of Alabama.
Marty R. Kittrell has been Executive Vice President and Chief Financial
Officer since May 1998 and will become a director of the Company upon the
consummation of this Offering. Since March 1998, Mr. Kittrell has served as a
consultant to the Company. Mr. Kittrell was Vice President, Chief Financial
Officer and Treasurer of Exide Electronics Group, a manufacturer of
uninterruptible power supplies, from 1989 to 1997. He also served as Vice
President, Chief Financial Officer and Treasurer of WearEver-Proctor Silex from
1983 to 1989. Mr. Kittrell was employed by Price Waterhouse LLP from 1977 to
1983 and is a certified public accountant. Mr. Kittrell has been a Director of
Capital Bank since 1997. Mr. Kittrell received a bachelor of science degree in
accounting from Lipscomb University.
William M. Dillard has been President and a director of the Company since
September 1997 and has been Chief Operating Officer since May 1998. Mr. Dillard
has been the Chief Executive Officer of Mechanical Services since 1974. In
addition Mr. Dillard is an active member of the American Society of Heating,
Refrigeration, and Air Conditioning Engineers ('ASHRAE'), where he is a recent
recipient of the ASHRAE Distinguished Service Award. Mr. Dillard received an
associates degree in HVAC technologies from Dekalb College.
Alan L. Barnes, Sr. will become a director of the Company upon the
consummation of this Offering. Mr. Barnes has served as President and Chief
Executive Officer of Aircond since 1982. In addition, from 1990 to 1997, Mr.
Barnes held various positions in Air Conditioning Contractors of America, a
leading industry association, including Director, President, Vice President and
Senior Vice
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President. Mr. Barnes received a bachelor of science degree in industrial
engineering from Georgia Institute of Technology and a masters degree in
business administration from Georgia State University.
John W. Davis will become a director of the Company upon the consummation
of this Offering. Mr. Davis has served as President of Air Systems since 1974,
when he founded Air Systems. Mr. Davis received a bachelor of science degree in
business administration from San Jose State University.
Robert S. Lafferty will become a director of the Company upon the
consummation of this Offering. Mr. Lafferty has been Chairman of the Board and
Secretary of Hill York since 1964. Mr. Lafferty received a bachelor of science
degree in mechanical engineering from the University of Florida.
William B. Lee will become a director of the Company upon the consummation
of this Offering. Mr. Lee has served as President and Chief Executive Officer of
Lee since July 1992. From 1981 to 1992, Mr. Lee held various positions at Lee,
including estimator, project engineer, project manager and Vice President. Mr.
Lee received a bachelor of science degree in mechanical engineering from Auburn
University.
Charles P. Reagan will become a director of the Company upon the
consummation of this Offering. Mr. Reagan has been President and Chief Executive
Officer of NEMSI since 1989. From 1983 to 1989, he held various positions in
NEMSI, including Executive Vice President. Mr. Reagan received an associates
degree in applied sciences-mechanical engineering from Onondaga Community
College in Syracuse, New York.
Anthony I. Shaker will become a director of the Company upon the
consummation of this Offering. Mr. Shaker has been President and Chief Executive
Officer of Energy Systems since 1994. Mr. Shaker has been a member of Building
Owners and Managers Association, serving on the Energy Committee, since 1995 and
was Chairman of the Air Conditioning Contractors of America Labor Relations
Committee. Mr. Shaker was a board member of United Service Alliance, a network
of service contractors throughout the United States, from 1995 to 1997 and has
been a member of the board of Air Conditioning & Refrigeration Contractors of
America since 1994. Mr. Shaker received a bachelor of science degree in
mechanical engineering from Syracuse University.
Mark A. Zilbermann will become a director of the Company upon the
consummation of this Offering. Mr. Zilbermann has been the President of Brandt
since 1991. Mr. Zilbermann has also been President of the Mechanical Contractors
Association of Dallas since 1997 and was President of the Texas Environmental
Balancing Bureau from September 1994 to September 1996. Mr. Zilbermann received
a bachelor of science degree from Yale University and a masters degree in
science from the University of Texas.
William J. Lynch has been a director of the Company since May 1998. He has
been a Managing Director of Capstone Partners, LLC ('Capstone'), a venture firm
specializing in consolidation transactions, since March 1996. From October 1989
to February 1996, he was a Partner in the law firm of Morgan, Lewis & Bockius
LLP. Mr. Lynch is a director of Coach USA, Inc. and Staffmark, Inc. Mr. Lynch
received a bachelor of science degree in English from Holy Cross and a juris
doctor degree from Harvard Law School.
All officers serve at the discretion of the Board of Directors.
BOARD OF DIRECTORS
After consummation of the Mergers, the Board of Directors of the Company
will consist of 15 directors divided into three classes. At each annual meeting
of stockholders commencing in 1999, directors will be elected to three-year
terms by the holders of the Common Stock to succeed those directors whose terms
are expiring. Directors whose terms will expire in 1999 are Rodney C. Gilbert
Robert S. Lafferty, Sr., John W. Davis and William J. Lynch; directors whose
terms will expire in 2000 are Marty R. Kittrell, Alan L. Barnes, Sr., William B.
Lee and Charles P. Reagan; and directors whose terms will expire in 2001 are
William M. Dillard, Anthony I. Shaker and Mark A. Zilbermann.
Board Committees. The Board of Directors intends to establish an Audit
Committee and a Compensation Committee, effective upon the consummation of this
Offering. The Audit Committee will review the results and scope of the audit and
other services provided by the Company's
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independent accountants. The Compensation Committee will approve salaries and
certain incentive compensation for management and key employees of the Company,
and will administer the 1998 Long-Term Incentive Plan.
Director Compensation. Directors who are also employees of the Company or
one of its subsidiaries will not receive additional compensation for serving as
directors. Each director who is not an employee of the Company or one of its
subsidiaries will receive an annual retainer of $10,000 and will receive $500
for each meeting attended. In addition, under the Company's 1998 Long-Term
Incentive Plan, each person serving or who has agreed to serve as a non-employee
director at the commencement of this Offering will be granted automatically an
option to acquire 10,000 shares of Common Stock, and thereafter each person who
becomes a non-employee director will be granted automatically an initial option
to acquire 10,000 shares upon such person's initial election as a director. In
addition, each such non-employee director will be granted, subject to a certain
exception, an annual option to acquire 5,000 shares at each annual meeting of
the Company's stockholders thereafter at which such director is re-elected or
remains a director. Each such option will have an exercise price equal to the
fair market value per share of Common Stock on the date of grant. See ' -- 1998
Long-Term Incentive Plan.' Directors also will be reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof.
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS; COVENANTS-NOT-TO-COMPETE
The Company was incorporated in September 1997, has conducted no operations
and generated no revenues to date and did not compensate any of its executive
officers for services rendered in 1997.
Each of Messrs. Gilbert and Kittrell will enter into an employment
agreement with the Company providing for an annual base salary of $250,000 and
$200,000, respectively. Each of Mr. Gilbert's and Mr. Kittrell's employment
agreements provide for a bonus to be determined annually equal to 50 percent of
the employee's base salary if specified criteria and performance standards are
met and 100 percent of the base salary if such specified criteria are exceeded
by an amount equal to or greater than 30 percent.
Mr. Gilbert's agreement will provide that, in the event of a termination of
employment by the Company without cause or by Mr. Gilbert for good reason
(including (i) a material diminution during the Employment Period in Mr.
Gilbert's office, duties or responsibilities (including following a Change in
Control) or (ii) a material breach by the Company of his Employment Agreement)
(other than by death or disability), Mr. Gilbert shall receive from the Company,
in a lump-sum payment due on the effective date of termination, an amount equal
to two times his then applicable base salary, plus any accrued salary and
declared but unpaid bonus and reimbursement of expenses. In addition, upon any
termination of Mr. Gilbert's employment agreement, other than by the Company for
good cause or by Mr. Gilbert without cause, any options or rights to purchase
securities of the Company shall immediately vest and remain exercisable until
the ten year anniversary of the date of the grant of such options or rights.
Each of Messrs. Dillard, Barnes, Lafferty, Lee, Reagan, Shaker, Zilbermann
and Davis will enter into an employment agreement with a Founding Company
providing for an annual base salary of $150,000 ($200,000 in the case of Mr.
Dillard and $250,000 in the case of Mr. Davis), and a bonus to be determined
annually in accordance with an annual bonus program of the Company for senior
executives, which bonus shall be contingent upon the achievement of certain
corporate or individual performance goals established by the Compensation
Committee.
Each of the foregoing employment agreements will be effective as of the
consummation of this Offering for a term of three years with automatic renewals
for two additional one-year periods on the same terms and conditions existing at
the time of renewal unless, not later than two months prior to each such
respective date, either party shall have given notice to the other party that
the term shall not be so extended.
Each of the foregoing agreements, other than Mr. Gilbert's agreement, will
provide that, in the event of a termination of employment by the Founding
Company without cause (other than upon the death or disability of the employee)
or by the employee for good reason (including (i) a material breach by the
Founding Company of the compensation and benefits provisions set forth in the
agreement; (ii) a notice of termination by the employee following the occurrence
of a Change in Control of the Founding
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<PAGE>
Company, as defined in the agreement; or (iii) a material breach by the Founding
Company of any other term of the Agreement), the employee shall be entitled to
severance payments equal to the employee's base salary as in effect immediately
prior to such termination over the longer of the then-remaining term or 12
months (the 'Severance Period'). In addition, under the foregoing circumstances,
all options to purchase Common Stock issued to the employee shall become
immediately vested and exercisable and, subject to the 1998 Long-Term Incentive
Plan, shall remain exercisable during the Severance Period.
Each of the aforementioned employees, other than Mr. Gilbert, will also be
entitled to coverage under the group medical care, disability and life insurance
benefit plans or arrangements in which such employee is participating at the
time of termination, for the continuation of the Severance Period, provided such
employee does not have comparable substitute coverage from another employer. Mr.
Gilbert's employment agreement requires the Company to extend medical coverage
for Mr. Gilbert, his spouse and eligible dependent family members beyond the
Employment Period at Mr. Gilbert's expense. Pursuant to the agreement, should
Mr. Gilbert become liable for certain income taxes with respect to the shares of
Common Stock he purchased from the Company, he would be paid an amount to
compensate him for such income taxes. Each employment agreement contains a
covenant-not-to-compete with the Company without the prior approval of the Board
of Directors of the Founding Company or the Company for a period of two years
following termination of employment. Under this covenant, the executive is
prohibited from: (i) directly or indirectly engaging in any business in
competition with the Company or any community in which the Company is doing
business; or (ii) soliciting or encouraging any employee of the Company or any
current or future subsidiary thereof to terminate his or her employment. The
covenant may be enforced by injunctions, specific performance or other equitable
relief to prevent any violations of the employee's obligations to the Company.
1998 LONG-TERM INCENTIVE PLAN
In December 1997, the Board of Directors and the Company's stockholders
approved the Company's 1998 Long-Term Incentive Plan (the 'Plan'). The purpose
of the Plan is to provide a means by which the Company can attract, retain and
award officers, employees, directors, consultants and other service providers
and to compensate such persons in a way that provides additional incentives and
enables such persons to increase their ownership interests in the Company.
Individual awards under the Plan may take the form of one or more of: (i) either
incentive stock options ('ISOs') or non-qualified stock options ('NQSOs'); (ii)
stock appreciation rights ('SARs'); (iii) restricted or deferred stock; (iv)
dividend equivalents; (v) bonus shares and awards in lieu of Company obligations
to pay cash compensation; and (vi) other awards the value of which is based in
whole or in part upon the value of the Common Stock.
The Plan will generally be administered by a committee (the 'Committee'),
which will initially be the Compensation Committee of the Board, except that the
Board will itself perform the Committee's functions under the Plan for purposes
of grants of awards to non-employee directors, and may perform any other
function of the Committee as well. The Committee generally is empowered to
select the individuals who will receive awards and the terms and conditions of
those awards, including exercise prices for options and other exercisable
awards, vesting and forfeiture conditions (if any), performance conditions, the
extent to which awards may be transferable and periods during which awards will
remain outstanding. Awards may be settled in cash, shares, other awards or other
property, as determined by the Committee.
The maximum number of shares of Common Stock that may be subject to
outstanding awards under the Plan will not exceed 13.5% of the aggregate number
of shares of Common Stock outstanding (2,343,110 as of the time of the
consummation of this Offering) minus the number of shares previously issued
pursuant to awards granted under the Plan. The number of shares deliverable upon
exercise of ISOs is limited to 2,343,110. The Plan also provides that no
participant may be granted in any calendar year (i) options or SARs exercisable
for more than 750,000 shares, or (ii) other awards that may be settled by
delivery of more than 750,000 shares, and limits payments under cash-settled
awards in any calendar year to an amount equal to the fair market value of that
number of shares as of the date of grant or the date of settlement of the award,
whichever is greater.
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In addition to authorizing grants of awards to any eligible person in the
discretion of the Committee, the Plan authorizes automatic grants of NQSOs to
non-employee directors. Under these provisions, each person serving or who has
agreed to serve as a non-employee director at the commencement of this Offering
will be granted an initial option to purchase 10,000 shares, and thereafter each
person who becomes a non-employee director will be granted an initial option to
purchase 10,000 shares upon such person's initial election as a director. In
addition, these provisions provide for the automatic annual grant to each
non-employee director of an option to purchase 5,000 shares at each annual
meeting of stockholders following this Offering; provided, however, that a
director will not be granted an annual option if he or she was granted an
initial option during the preceding three months. The number of shares to be
subject to initial or annual options to be granted after the first annual
meeting of stockholders following this Offering may be altered by the Board of
Directors. These options will have an exercise price equal to the fair market
value of the Common Stock on the date of grant (in the case of options granted
to the initial non-employee directors, the exercise price will be the initial
public offering price), and the options will expire at the earlier of 10 years
after the date of grant or one year after the date the person ceases to serve as
a director of the Company for any reason. These options generally will become
exercisable one year after the date of grant, except that an option will be may
be forfeited upon a participant's termination of service as a director for
reasons other than death or disability less than 11 months after the date of
grant.
In connection with this Offering, in addition to the options to be granted
automatically to non-employee directors, options in the form of NQSOs to
purchase a total of shares of Common Stock will be granted to
executive officers of the Company and to employees of the Company and the
Founding Companies as follows: shares to , shares
to , shares to , shares to ,
and shares to the employees of the Company and the Founding Companies.
Each of the foregoing options will have an exercise price equal to the initial
public offering price, and will vest as to one-third each year subsequent to the
consummation of this Offering. Unvested options generally will be forfeited upon
a termination of employment that is voluntary by the participant. Upon a change
of control of the Company (as defined in the Plan), vesting will be accelerated.
The options generally will expire on the earlier of 10 years after the date of
grant or three months after termination of employment (immediately in the event
of a termination for cause), unless otherwise determined by the Committee.
In connection with the Mergers, the Company will assume options to acquire
shares of common stock of one of the Founding Companies which, following the
Mergers, will constitute options to purchase an aggregate of 119,500 shares of
Common Stock of the Company at an exercise price equal to $8.38. The other terms
of such options will be the same as the terms of the options described in the
preceding paragraph.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any Federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted. The
number of shares reserved or deliverable under the Plan, the annual
per-participant limits, the number of shares subject to options automatically
granted to non-employee directors, and the number of shares subject to
outstanding awards are subject to adjustment in the event of stock splits, stock
dividends and other extraordinary corporate events.
The Company generally will be entitled to a tax deduction equal to the
amount of compensation realized by a participant through awards under the Plan,
except (i) no deduction is permitted in connection with ISOs if the participant
holds the shares acquired upon exercise for the required holding periods; and
(ii) deductions for some awards could be limited under the $1.0 million
deductibility cap of Section 162(m) of the Internal Revenue Code. This
limitation, however, should not apply to awards granted under the Plan during a
grace period of approximately three years following this Offering, and should
not apply to certain options, SARs and performance-based awards granted
thereafter if the Company complies with certain requirements under Section
162(m).
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CERTAIN TRANSACTIONS
ORGANIZATION OF THE COMPANY
Enfinity was formed in September 1997. The Founding Companies and Capstone
have agreed to advance the expenses to be incurred by the Company in connection
with the Mergers and this Offering in proportion to their respective equity
interests in the Company prior to this Offering. These advances aggregated
$70,000 as of December 31, 1997. The Company anticipates that additional amounts
will be advanced prior to the consummation of this Offering. All amounts
advanced will be repaid out of the proceeds of this Offering. As a result of a
36,804.93 for 1 stock split to be effected in the form of a stock dividend prior
to the consummation of this Offering, the 15 shares of Common Stock initially
issued by Enfinity to Capstone and its principals will aggregate 552,074 shares
on the closing of this Offering.
Simultaneously with the closing of this Offering, Enfinity will acquire by
merger all of the issued and outstanding stock of the eight Founding Companies,
at which time each Founding Company will become a wholly owned subsidiary of the
Company. The aggregate consideration to be paid by Enfinity in the Mergers
consists of (i) approximately $80.9 million in cash and (ii) 8,243,970 shares of
Common Stock. The Company will assume indebtedness of the Founding Companies in
connection with the Mergers. Such indebtedness aggregated $26.2 million at
December 31, 1997. The Company also will assume options to purchase shares of
common stock of a Founding Company which, following the Mergers, will constitute
options to purchase an aggregate of 119,500 shares of Common Stock at an
exercise price of $8.38 per share. See 'Management -- 1998 Long-Term Incentive
Plan.' The Founding Company stockholders, as a group, negotiated the
consideration for each of the Founding Companies based on a number of factors.
The factors considered in determining the consideration to be paid included,
among others, the historical operating results, the net worth, the amount and
type of indebtedness and the future prospects of the Founding Companies. Each
Founding Company was represented by independent counsel in the negotiation of
the terms and conditions of the Mergers.
The aggregate consideration paid by Enfinity for each of the Founding
Companies and the total debt to be assumed by the Company are as follows:
<TABLE>
<CAPTION>
SHARES OF VALUE OF
FOUNDING COMPANY COMMON STOCK CASH(1) OPTIONS DEBT ASSUMED
- ---------------------------------------------- ------------ ------- -------- ------------
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<S> <C> <C> <C> <C>
Brandt........................................ 1,523,171 $13,385 $-- $ --
Air Systems................................... 1,402,397(2) 18,932 1,103 10,148
Hill York..................................... 821,209 7,122 -- 754
Mechanical Services........................... 678,948 6,111 -- 54
Aircond....................................... 960,129 8,641 -- 5,307
Energy Systems................................ 720,566 6,938(3) -- 2,444
NEMSI......................................... 841,275 8,085 -- 3,455
Lee........................................... 1,296,275 11,664 -- 4,066
------------ ------- -------- ------------
Total.................................... 8,243,970 $80,878 $1,103 $ 26,228
------------ ------- -------- ------------
------------ ------- -------- ------------
</TABLE>
- ------------
(1) The number of shares of Common Stock to be issued to the stockholders of the
Founding Companies is fixed. If the initial public offering price is higher
than the assumed offering price, the cash consideration will vary
proportionately. For example, a $1.00 increase over the assumed offering
price will result in a $6.0 million increase in the aggregate cash
consideration paid to the Founding Company stockholders.
(2) Does not include 119,500 shares of Common Stock issuable upon the exercise
of options to be issued to holders of options to purchase common stock of
Air Systems.
(3) Includes $1.3 million in liquidation value of preferred stock to be paid to
preferred stockholders of Energy Systems.
Immediately prior to the Mergers, certain of the Founding Companies will
make distributions of approximately $6.7 million, representing the transfer of
selected assets (including 'Excess Working Capital') and S Corporation earnings
previously taxed to their respective stockholders.
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The closing of each Merger is subject to customary conditions. These
conditions include, among others, the accuracy on the closing date of the
representations and warranties made by the Founding Companies, their principal
stockholders and by the Company; the performance of each of their respective
covenants included in the Merger Agreements; and the nonexistence of a material
adverse change in the business, results of operations or financial condition of
any Founding Company which would constitute a material adverse change with
respect to the Company as a whole. There can be no assurance that the conditions
to the Mergers will be satisfied or waived or that the Merger Agreements will
not be terminated prior to consummation.
Pursuant to the Merger Agreements, the stockholders of the Founding
Companies have agreed not to compete with the Company for four years, commencing
on the date of closing of this Offering.
Certain of the Founding Companies have incurred indebtedness which has been
personally guaranteed by their stockholders. Specifically, certain stockholders
of Brandt (including Mr. Zilbermann) have personally guaranteed Brandt's $1.5
million line of credit; Mr. Dillard and his spouse have personally guaranteed
Mechanical Systems' $1.6 million revolving line of credit; Mr. Davis has
personally guaranteed all of Air Systems' debt and lease obligations; Mr. Barnes
has personally guaranteed a $1.2 million note issued by Aircond; and Mr.
Lafferty has personally guaranteed Hill York's $1.7 million line of credit. The
Company has agreed to use its best efforts to have the personal guarantees of
this indebtedness released within 90 days after the closing of this Offering
and, in the event that any guarantee cannot be released, to repay or refinance
such indebtedness. See 'Use of Proceeds.'
In connection with the Mergers, and as consideration for their interests in
the Founding Companies, certain executive officers, directors and persons who
will hold more than 5% of the outstanding shares of Common Stock of the Company
upon the consummation of this Offering will receive, directly or indirectly,
cash and shares of Common Stock of the Company as follows:
<TABLE>
<CAPTION>
SHARES OF
NAME CASH COMMON STOCK
- ------------------------------------------------------ ---------- ----------------------
<S> <C> <C>
Alan L. Barnes, Sr.................................... 672,090
John W. Davis......................................... 1,332,277
William M. Dillard.................................... 678,948
Robert S. Lafferty.................................... 323,889
William B. Lee........................................ 476,342
Charles P. Reagan..................................... 727,471
Anthony I. Shaker..................................... 564,201
Mark A. Zilbermann.................................... 574,497
- ---------
See notes to Principal Stockholders table.
</TABLE>
OTHER TRANSACTIONS
Air Systems leases its primary office and warehouse space from the family
trust of Mr. Davis, the President and controlling stockholder of Air Systems.
The leases expire in December 2001, with rents totaling approximately $29,000
per month. The Company believes that the rent for such property does not exceed
the fair market rental thereof.
Air Systems has reimbursed Mr. Davis approximately $300,000 worth of
personal expenses for the fiscal year ended February 29, 1998, including with
respect to the operation and maintenance of a motor home, vacation residences
and a personal residence and for race car expenses.
Aircond leases real property from New Visions Properties I, LLLP, a Georgia
limited liability limited partnership in which Alan L. Barnes, Sr. and his wife
are general partners. The lease is for a term of 15 years ending on October 1,
2012 and provides for an annual rent of $300,000. The Company believes that the
rent for such property does not exceed the fair market rental thereof.
In September 1996, Aircond redeemed all of the outstanding shares of
Preferred Stock from Fayoline Paul, the mother of Mr. Barnes, in exchange for a
note in the principal amount of $1.2 million, which bears interest at an annual
rate of 9% through August 2011. Mr. Barnes has personally guaranteed the
payments under such note. This note will be repaid out of the proceeds of this
Offering.
ZMR Capital Ltd., a partnership of which Mr. Zilbermann is a 40% owner,
leases a building and certain equipment to Brandt. The current total aggregate
annual rental payments due under these leases amount to $168,000. Prior to the
consummation of this Offering, the annual lease payments will be
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<PAGE>
reduced to approximately $ . The Company believes that the reduced rent
for such property will not exceed the fair market rental thereof.
Hill York has intercompany receivables in the aggregate principal amount of
$298,000 as of December 31, 1997 from certain companies that have officers and
stockholders in common with Hill York. Such amounts are guaranteed by Mr.
Lafferty.
Hill York leases office and warehouse space from 3921 Associates, a general
partnership of which Robert S. Lafferty and Hill York Service Corporation are
partners. The lease is for a period of five years, expiring on September 30,
2002, and requires monthly payments of approximately $5,000. The Company
believes that the rent for such property does not exceed the fair market rental
thereof.
Hill York, Hill York Service Corporation and Mr. Lafferty have entered into
an agreement of indemnity providing for cross indemnities on any surety bonds or
guarantees issued by an insurance company on behalf of Hill York or its
affiliates. This general agreement of indemnity was terminated on November 24,
1997; however, the indemnity is in full force and effect with respect to all
bonds written prior to such date.
Lee sold real property for $2.7 million in October 1997 to Three Springs
Development, LLC ('Three Springs'), in which Mr. Lee has a one-third interest.
Three Springs took out a mortgage in the amount of $2,400,000, which was
guaranteed by Lee. This guarantee will be released prior to the consummation of
this Offering. The Company believes that the purchase price for the property was
not below the fair market purchase price thereof. In addition, Lee leases the
property from Three Springs under a 10 year lease for an annual rent of
approximately $350,000, which will be adjusted for inflation after five years.
The Company believes that the rent for such property does not exceed the fair
market rental thereof.
As of December 31, 1997, Lee held a note receivable from Mr. Lee in the
amount of $500,000 used to finance the purchase of shares of Lee common stock
from another stockholder. Lee issued its own note to a commercial bank which
provided funds for this transaction. The notes bear interest at a variable rate
based on ( % as of December 31, 1997) and have a term
of five years ending October 1, 1999. In addition, as of December 31, 1997, Lee
had a note receivable from Three Springs in the amount of $300,000. The rate on
the note is 8.2% and the note has a term of 10 years ending September 2001.
These notes will be repaid to Lee prior to the consummation of this Offering.
Mr. Dillard and his spouse lease real property to Mechanical Services under
a five-year lease which expires in 2002. The lease provides for annual rental
payments of approximately $130,000. The Company believes that the rent for such
property does not exceed the fair market rental value thereof.
Prior to the consummation of the Offering, Mr. Reagan will purchase NEMSI's
headquarters from NEMSI for $1,350,000, the value of such property as appraised
by a third party. NEMSI will enter into a long-term lease for such property with
annual rental payments of approximately $175,560. The Company believes that the
rent for such property does not exceed the fair market rental value thereof.
Air Systems has guaranteed a $150,000 loan to the John W. Davis Family
Trust. Such loan matures on and bears interest at a rate of
per annum.
COMPANY POLICY
Certain related-party transactions described above under 'Other
Transactions' were not entered into on an arm's-length basis. It is the
Company's policy that any future transactions with officers, directors and
affiliates will be approved by a majority of the disinterested members of the
Board of Directors, and will be made on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
53
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, after giving effect to the Mergers and this
Offering, certain information with respect to the beneficial ownership of the
Common Stock of the Company by (i) each person known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock; (ii)
each director and person who will become a director upon the consummation of
this Offering (collectively, 'named directors'); (iii) each executive officer;
and (iv) all executive officers, directors and named directors as a group. All
persons listed have sole voting and investment power with respect to their
shares unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
AFTER OFFERING
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- ---------------------------------------------------------------------------------------- ---------- -------
<S> <C> <C>
Rodney C. Gilbert(2).................................................................... 475,333 2.7%
Marty R. Kittrell(3).................................................................... 99,074 *
William M. Dillard(4)................................................................... 678,948 3.9
Alan L. Barnes, Sr.(5).................................................................. 672,090 3.9
John W. Davis........................................................................... 1,332,277 7.7
Robert S. Lafferty...................................................................... 323,889 1.9
William B. Lee.......................................................................... 476,342 2.7
Charles P. Reagan....................................................................... 727,471 4.2
Anthony I. Shaker(6).................................................................... 564,201 3.3
Mark A. Zilbermann(7)................................................................... 574,497 3.3
William J. Lynch(8)..................................................................... 273,968 1.6
All executive officers, directors and named directors as a group (11 persons)(9)........ 6,198,090 35.5%
</TABLE>
- ------------
* Less than 1.0%
(1) Unless otherwise indicated, the address of the beneficial owners is c/o
Enfinity Corporation, 400 Lake Ridge Drive, Smyrna, Georgia 30082.
(2) Includes 50,000 shares issuable in connection with options that are
exercisable upon the consummation of this Offering. Does not include 150,000
shares issuable in connection with options that are not exercisable within
60 days of the date hereof.
(3) Includes 25,000 shares issuable in connection with options that are
exercisable upon the consummation of this Offering. Does not include 75,000
shares issuable in connection with options that are not exercisable within
60 days of the date hereof.
(4) An aggregate of 339,474 of these shares are owned of record by the William
Mason Dillard Revocable Trust, of which Mr. Dillard is the trustee.
An aggregate of 339,474 of these shares are owned by the Deborah K. Dillard
Revocable Trust, of which Deborah K. Dillard, Mr. Dillard's spouse, is the
trustee. Includes 12,500 shares issuable in connection with options that are
exercisable upon the consummation of this Offering. Does not include 37,500
shares issuable in connection with options that are not exercisable within
60 days of the date hereof.
(5) An aggregate of 188,761 of these shares are owned of record by Mr. Barnes'
spouse.
(6) An aggregate of 358,348 shares are owned of record by The Energy Systems
Industries, Inc. Stock Sharing Trust, of which Mr. Shaker is a
trustee and shares voting power and investment power with the other trustees
with respect to such shares.
(7) An aggregate of 8,997 of these shares are owned by the Douglas Zilbermann
1997 Trust, of which Mr. Zilbermann's spouse is the trustee. An aggregate of
8,997 of these shares are owned by the Aaron Zilbermann 1997 Trust, of which
Mr. Zilbermann's spouse is the trustee.
(8) Includes 156,553 shares owned of record by Mr. Lynch and 117,415 shares
owned of record by Capstone, of which Mr. Lynch is a principal. Does not
include an aggregate of 313,106 shares owned of record by two other
principals of Capstone, as to which shares Mr. Lynch disclaims beneficial
ownership. Also does not include 10,000 shares issuable in connection with
options that are not exercisable within 60 days of the date hereof.
(9) Includes 87,500 shares issuable in connection with options that are
exercisable upon the consummation of this Offering.
54
<PAGE>
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 49,000,000 shares of
Common Stock, par value $.01 per share, and 500,000 shares of undesignated
preferred stock, par value $.01 per share (the 'Preferred Stock'). After giving
effect to the Mergers and the completion of this Offering, the Company will have
outstanding 17,356,377 shares of Common Stock and no shares of Preferred Stock.
See 'Shares Eligible for Future Sale.'
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. The following is
qualified in its entirety by reference thereto.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Subject
to the rights of any then outstanding shares of Preferred Stock, the holders of
Common Stock are entitled to such dividends as may be declared in the discretion
of the Board of Directors out of funds legally available therefor. See 'Dividend
Policy.' Holders of Common Stock are entitled to share ratably in the net assets
of the Company upon liquidation after payment or provision for all liabilities
and any preferential liquidation rights of any Preferred Stock then outstanding.
The holders of Common Stock have no preemptive rights to purchase shares of
stock of the Company. Shares of Common Stock are not subject to any redemption
provisions and are not convertible into any other securities of the Company,
except as provided in the following paragraph. All outstanding shares of Common
Stock are, and the shares of Common Stock to be issued pursuant to this Offering
will be upon payment therefor, fully paid and non-assessable.
The Company will apply for listing of the Common Stock on the New York
Stock Exchange under the symbol 'BTU.'
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors in one or more series. Subject to the provisions of the Company's
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any series of the Preferred
Stock, in each case without any further action or vote by the stockholders. The
Company has no current plans to issue any shares of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
Upon the consummation of this Offering, the Company will be subject to the
provisions of Section 203 ('Section 203') of the Delaware General Corporation
Law (the 'DGCL'). Section 203
55
<PAGE>
<PAGE>
provides, with certain exceptions, that a Delaware corporation may not engage in
any of a broad range of business combinations with a person or an affiliate or
associate of such person, who is an 'interested stockholder' for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the Board of Directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an 'interested stockholder' is
defined as any person who is (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation and who was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.
The Company's stockholders, by adopting an amendment to the Certificate of
Incorporation, may elect not to be governed by Section 203, which election would
be effective 12 months after such adoption. The provisions of Section 203 could
delay or frustrate a change in control of the Company, deny stockholders the
receipt of a premium on their Common Stock and have an adverse effect on the
Common Stock. The provisions also could discourage, impede or prevent a merger
or tender offer, even if such event would be favorable to the interests of
stockholders.
LIMITATION ON DIRECTORS' LIABILITIES
Limitation on Liability. Pursuant to the Company's Certificate of
Incorporation and as permitted by Section 102(b)(7) of the DGCL, directors of
the Company are not liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty, except for liability in connection with a
breach of duty of loyalty, for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for dividend
payments or stock repurchases that are illegal under Delaware law or for any
transaction in which a director has derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the Certificate of
Incorporation provides for mandatory indemnification of directors and officers
of the Company against any expense, liability and loss to which they become
subject, or which they may incur as a result of having been a director or
officer of the Company. In addition, the Company must advance or reimburse
directors and officers for expenses incurred by them in connection with certain
claims.
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS OF THE COMPANY
The Certificate of Incorporation and By-Laws of the Company contain
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board of Directors and in the policies formulated by the Board of Directors.
These provisions also are intended to help ensure that the Board of Directors,
if confronted by an unsolicited proposal from a third party which has acquired a
block of stock of the Company, will have sufficient time to review the proposal
and appropriate alternatives to the proposal and to act in what it believes to
be the best interest of the stockholders.
The following is a summary of such provisions included in the Certificate
of Incorporation and By-Laws of the Company. The Board of Directors has no
current plans to formulate or effect additional measures that could have an
anti-takeover effect.
Classified Board of Directors. The Certificate of Incorporation provides
for a Board of Directors divided into three classes of directors serving
staggered three-year terms. The classification of directors has the effect of
making it more difficult for stockholders to change the composition of the Board
of
56
<PAGE>
<PAGE>
Directors in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, generally will be required to effect a change in a
majority of the Board of Directors. Such a delay may help ensure that the Board
of Directors and the stockholders, if confronted with an unsolicited proposal by
a stockholder attempting to force a stock repurchase at a premium above market,
a proxy contest or an extraordinary corporate transaction, will have sufficient
time to review the proposal and appropriate alternatives to the proposal and to
act in what it believes to be the best interest of the stockholders. Directors,
if any, elected by holders of preferred stock voting as a class, will not be
classified as aforesaid. Moreover, under Delaware law, in the case of a
corporation having a classified board, stockholders may remove a director only
for cause. This provision will preclude a stockholder from removing incumbent
directors without cause.
Advance Notice Requirements for Director Nominees. The By-Laws establish an
advance notice procedure with regard to the nomination of candidates for
election as directors at any meeting of stockholders called for the election of
directors. The procedure provides that a notice relating to the nomination of
directors must be timely given in writing to the Secretary of the Company prior
to the meeting. To be timely, notice relating to the nomination of directors for
election at an annual meeting must be delivered not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day of which public announcement of the date of such annual
meeting is first made. Notice relating to the nomination of directors for
election at a special meeting must be given not later than the close of business
on the 10th day following the date notice of such meeting is mailed to
stockholders or public disclosure of the date of such meeting is made.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must be accompanied by each proposed
nominee's written consent and contain the name, address and principal occupation
of each proposed nominee. Such notice must also contain the total number of
shares of capital stock of the Company that will be voted for each of the
proposed nominees, the number of shares of each class of capital stock of the
Company beneficially owned by such person and other information that may be
required under the proxy rules of the Commission. Such notice must also contain
the name and address of the notifying stockholder and the number of shares of
capital stock of the Company owned by the notifying stockholder.
Although the Company's By-Laws do not give the Board of Directors any power
to approve or disapprove stockholder nominations for the election of directors
or of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's By-Laws (i) may have the effect of precluding a
nomination for the election of directors or precluding the conduct of business
at a particular meeting if the proper procedures are not followed or (ii) may
discourage or deter a third party from conducting a solicitation of proxies to
elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is
.
57
<PAGE>
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
After this Offering, the Company will have outstanding 17,356,377 shares of
Common Stock. The shares sold in this Offering (plus any additional shares sold
upon exercise of the Underwriters' over-allotment option) will be freely
tradable without restriction unless acquired by affiliates of the Company. None
of the remaining 9,356,377 outstanding shares of Common Stock has been
registered under the Securities Act, which means that such shares may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of the restricted shares of
Common Stock from either the Company or any affiliate of the Company, the
acquirer or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of the Prospectus relating to this Offering, a
number of shares that does not exceed the greater of one percent of the then
outstanding shares of the Common Stock, or the average weekly trading volume of
the Common Stock on The New York Stock Exchange during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
Upon the completion of this Offering, the holders of Common Stock who did
not purchase shares in this Offering will own 9,356,377 shares of Common Stock,
including the stockholders of the Founding Companies, who will receive in the
aggregate 8,243,970 shares in connection with the Mergers, and management of
and consultants to Enfinity, who own 1,112,407 shares. These shares have not
been registered under the Securities Act and, therefore, may not be sold unless
registered under the Securities Act or sold pursuant to an exemption from
registration, such as the exemption provided by Rule 144. Furthermore, these
stockholders have agreed with the Company to certain restrictions on the sale,
transfer or other disposition of these shares following the consummation of this
Offering. Such transfer restrictions will end: (i) as to 50% of the shares, two
years after the consummation of this Offering; (ii) as to the next 25% of the
shares, 30 months after the consummation of this Offering; (iii) as to the
remaining 25% of the shares, three years after the consummation of this
Offering. In addition, the Company has agreed to enforce for the benefit of
NationsBanc Montgomery Securities LLC such transfer restrictions for a period of
180 days after the date of this Prospectus See 'Underwriting.'
In connection with the Mergers, the Company has agreed to provide certain
registration rights with respect to the Common Stock issued to the stockholders
of the Founding Companies. The registration rights provide for a single demand
registration right, exercisable by the holders of a majority of the shares of
Common Stock subject to the registration rights, pursuant to which the Company
will file a registration statement under the Securities Act to register the sale
of shares by those requesting stockholders and any other holders of Common Stock
subject to the registration rights who desire to sell pursuant to such
registration statement. The demand request may not be made until the expiration
of three years after the closing of this Offering. In addition, subject to
certain conditions and limitations, the holders of Common Stock with such
registration rights as well as management of and consultants to the Company,
have the right to participate in registrations by the Company of its equity
securities in underwritten offerings, subject to certain exceptions, which
include shelf registrations for future acquisitions and registrations relating
to employee benefit plans.
In the case of each of the registration rights described above, the Company
is generally required to pay the costs associated with any offering pursuant to
such registration rights other than underwriting discounts and commissions
attributable to the shares sold on behalf of the selling stockholders.
In addition, the Company, all of its officers and directors and the holders
of all shares of Common Stock outstanding prior to this Offering have agreed not
to offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock, or any securities convertible into or exercisable or
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<PAGE>
exchangeable for Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC, except for, in the case of the Company, Common Stock issued
pursuant to the Plan or in connection with acquisitions, subject in each case to
any remaining portion of the 180-day period applying to the shares issued. In
evaluating any request for a waiver of the 180-day lock-up period, NationsBanc
Montgomery Securities LLC will consider, in accordance with its customary
practice, all relevant facts and circumstances at the time of the request,
including, without limitation, the recent trading market for the Common Stock,
the size of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance. See
'Underwriting.'
The 5,000,000 shares of Common Stock to be registered pursuant to the
Company's shelf registration statement will be, upon issuance thereof, freely
tradable unless acquired by parties to the acquisition or affiliates of such
parties, other than the issuer, in which case they may be sold pursuant to Rule
145 under the Securities Act. Rule 145 permits such persons to resell
immediately securities acquired in transactions covered under the Rule, provided
such securities are resold in accordance with the public information, volume
limitations and manner of sale requirements of Rule 144. If a period of one year
has elapsed since the date such securities were acquired in such transaction and
if the issuer meets the public information requirements of Rule 144, Rule 145
permits a person who is not an affiliate of the issuer to freely resell such
securities. The Company generally intends to contractually restrict the shares
issued in connection with future acquisitions. The registration rights described
above do not apply to such shelf registration statement.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
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<PAGE>
UNDERWRITING
The Underwriters named below (the 'Underwriters'), represented by
NationsBanc Montgomery Securities LLC, Lehman Brothers Inc. and Raymond James &
Associates, Inc. (the 'Representatives'), have severally agreed, subject to the
terms and conditions in the underwriting agreement (the 'Underwriting
Agreement') by and between the Company and the Underwriters, to purchase from
the Company the number of shares of Common Stock indicated below opposite its
name, at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares of Common
Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ----------------------------------------------------------------------------------------------------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC................................................................
Lehman Brothers Inc..................................................................................
Raymond James & Associates, Inc......................................................................
Total...........................................................................................
---------
8,000,000
---------
---------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on the
cover page of this Prospectus. The Underwriters may allow selected dealers a
concession of not more than $ per share; and the Underwriters may allow,
and such dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives. The Common
Stock is offered subject to receipt and acceptance by the Underwriters, and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted to the Underwriters an option, exercisable for the
30-day period after the date of this Prospectus, to purchase up to a maximum of
1,200,000 additional shares of Common Stock to cover over-allotments, if any, at
the same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with this Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company's officers and directors and all of the stockholders of the
Company prior to this Offering have agreed that for a period of 180 days after
the date of this Prospectus they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, directly or indirectly sell, offer,
contract or grant any option to sell, pledge, transfer, establish an open put
equivalent position or otherwise dispose of any shares of Common Stock, options
or warrants to acquire shares of Common Stock or securities exchangeable or
exercisable for or convertible into shares of Common Stock. In addition, the
Company has agreed to enforce for the benefit of NationsBanc Montgomery
Securities LLC the restrictions on the sale, transfer or other disposition of
shares of Common Stock that the stockholders of the Founding Companies agreed to
in the Merger Agreements for a period of 180 days after the date of this
Prospectus. The Company has also agreed not to issue, offer, sell, grant options
to purchase or otherwise dispose of any of the Company's equity securities for a
period of 180 days after the effective date of this Offering without the prior
written consent of NationsBanc Montgomery Securities LLC, except for securities
issued by the Company in connection with acquisitions and for grants and
exercises of stock options, subject in each case to any remaining portion of the
180-day period applying to the shares issued. In evaluating any request for a
waiver of the 180-day lock-up period, NationsBanc Montgomery Securities LLC will
consider, in accordance with its customary
60
<PAGE>
<PAGE>
practice, all relevant facts and circumstances at the time of the request,
including, without limitation, the recent trading market for the Common Stock,
the size of the request and, with respect to a request by the Company to issue
additional equity securities, the purpose of such an issuance.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with this Offering than they are committed to purchase from the
Company and, in such case, may purchase Common Stock in the open market
following completion of this Offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position, up to 1,200,000 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above. In addition, NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters, may impose 'penalty
bids' under contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or dealer participating in this Offering) for the
account of the other Underwriters, the selling concession with respect to Common
Stock that is distributed in this Offering but subsequently purchased for the
account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if any such transaction is undertaken, it may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
intend to make sales of Common Stock offered by this Prospectus to accounts over
which they exercise discretionary authority in excess of 5% of the number of
shares of Common Stock offered hereby.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price will be determined
by negotiations between the Company and the Representatives. Among the factors
expected to be considered in such negotiations are the history of, and the
prospects for, the Company and the industry in which the Company competes, an
assessment of the Company's management, its financial condition, its past and
present earnings and the trend of such earnings, the prospects for future
earnings of the Company, the present state of the Company's development, the
general condition of the economy and the securities markets at the time of this
Offering and the market prices of the demand for publicly traded stock of
comparable companies in recent periods.
61
<PAGE>
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Morgan, Lewis & Bockius LLP,
New York, New York. Certain legal matters related to this Offering will be
passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New
York.
EXPERTS
The Enfinity financial statements as of December 31, 1997 and for the
period from inception to December 31, 1997; the Brandt financial statements as
of December 31, 1996 and 1997, for the period from May 25 to December 31, 1995
and for each of the two years in the period ended December 31, 1997; the Energy
Systems financial statements as of December 31, 1996 and 1997 and for each of
the three years in the period ended December 31, 1997; the NEMSI financial
statements as of December 31, 1996 and 1997 and for each of the two years in the
period ended December 31, 1997; the Lee financial statements as of December 31,
1996 and 1997 and for each of the two years in the period ended December 31,
1997; the Hill York financial statements as of March 31, 1996 and 1997, as of
December 31, 1997, for each of the two years in the period ended March 31, 1997
and for the nine months ended December 31, 1997; the Mechanical Services
financial statements as of December 31, 1997 and for the year then ended; and
the Aircond financial statements as of September 30, 1996 and 1997, as of
December 31, 1997 and for each of the three years in the period ended December
31, 1997 included elsewhere in this Prospectus have been so included in reliance
on the reports of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The Air Systems financial statements as of February 29, 1996 and February
28, 1997 and for the three years in the period ended February 28, 1997 included
elsewhere in this Prospectus have been so included in reliance on the report of
Shilling & Kenyon Inc., independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C., a Registration Statement on Form S-1 with respect to the
shares of Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the Company and the
shares of Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits, financial statements and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such materials can be obtained from the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission maintains an Internet web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically. The address of such Internet web site is
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and to make available quarterly reports containing unaudited summary
financial information for each of the first three quarters of each fiscal year.
62
<PAGE>
<PAGE>
ENFINITY CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ENFINITY CORPORATION UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Combined Financial Statements................................... F-3
Unaudited Pro Forma Combined Balance Sheet.......................................................... F-4
Unaudited Pro Forma Combined Statement of Operations................................................ F-5
Notes to Unaudited Pro Forma Combined Financial Statements.......................................... F-6
ENFINITY CORPORATION
Report of Independent Accountants................................................................... F-10
Balance Sheet....................................................................................... F-11
Notes to Financial Statements....................................................................... F-12
FOUNDING COMPANIES
BRANDT MECHANICAL SERVICES, INC.
Report of Independent Accountants................................................................... F-15
Consolidated Balance Sheet.......................................................................... F-16
Consolidated Statement of Operations................................................................ F-17
Consolidated Statement of Stockholders' Equity...................................................... F-18
Consolidated Statement of Cash Flows................................................................ F-19
Notes to Consolidated Financial Statements.......................................................... F-20
AIR SYSTEMS, INC.
Report of Independent Accountants................................................................... F-26
Balance Sheet....................................................................................... F-27
Statement of Operations............................................................................. F-28
Statement of Stockholders' Equity................................................................... F-29
Statement of Cash Flows............................................................................. F-30
Notes to Financial Statements....................................................................... F-31
ENERGY SYSTEMS INDUSTRIES, INC.
Report of Independent Accountants................................................................... F-39
Consolidated Balance Sheet.......................................................................... F-40
Consolidated Statement of Operations................................................................ F-41
Consolidated Statement of Stockholders' Equity...................................................... F-42
Consolidated Statement of Cash Flows................................................................ F-43
Notes to Consolidated Financial Statements.......................................................... F-44
NEW ENGLAND MECHANICAL SERVICES, INC.
Report of Independent Accountants................................................................... F-54
Balance Sheet....................................................................................... F-55
Statement of Operations............................................................................. F-56
Statement of Stockholders' Equity................................................................... F-57
Statement of Cash Flows............................................................................. F-58
Notes to Financial Statements....................................................................... F-59
LEE COMPANY
Report of Independent Accountants................................................................... F-66
Balance Sheet....................................................................................... F-67
Statement of Operations............................................................................. F-68
Statement of Stockholders' Equity................................................................... F-69
Statement of Cash Flows............................................................................. F-70
Notes to Financial Statements....................................................................... F-71
</TABLE>
F-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HILL YORK CORPORATION AND HILL YORK SERVICE CORPORATION
Report of Independent Accountants................................................................... F-79
Combined Balance Sheet.............................................................................. F-80
Combined Statement of Operations.................................................................... F-81
Combined Statement of Stockholders' Equity.......................................................... F-82
Combined Statement of Cash Flows.................................................................... F-83
Notes to Combined Financial Statements.............................................................. F-84
MECHANICAL SERVICES OF ORLANDO, INC.
Report of Independent Accountants................................................................... F-92
Balance Sheet....................................................................................... F-93
Statement of Operations............................................................................. F-94
Statement of Stockholders' Equity................................................................... F-95
Statement of Cash Flows............................................................................. F-96
Notes to Financial Statements....................................................................... F-97
AIRCOND CORPORATION
Report of Independent Accountants................................................................... F-102
Balance Sheet....................................................................................... F-103
Statement of Operations............................................................................. F-104
Statement of Stockholders' Equity................................................................... F-105
Statement of Cash Flows............................................................................. F-106
Notes to Financial Statements....................................................................... F-107
</TABLE>
F-2
<PAGE>
<PAGE>
ENFINITY CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Enfinity Corporation ('Enfinity') of the outstanding
capital stock of Brandt Mechanical Services, Inc. ('Brandt'), Air Systems, Inc.
('Air Systems'), Energy Systems Industries, Inc. ('Energy Systems'), New England
Mechanical Services, Inc. ('NEMSI'), Lee Company ('Lee'), Hill York Corporation
('Hill York'), Mechanical Services of Orlando, Inc. ('Mechanical Services') and
Aircond Corp. ('Aircond') (together, the 'Founding Companies'). These
acquisitions (the 'Mergers') will occur simultaneously with the closing of
Enfinity's initial public offering (this 'Offering') and will be accounted for
using the purchase method of accounting. In accordance with the provisions of
Staff Accounting Bulletin No. 97, Brandt is deemed to be the accounting acquiror
as its stockholders will receive the largest portion of the voting rights in the
combined corporation.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the Mergers
and the Offering as if they had occurred on December 31, 1997. The Unaudited Pro
Forma Combined Statement of Operations gives effect to these transactions as if
they had occurred on January 1, 1997.
Enfinity has preliminarily analyzed the savings that it expects to be
realized from reductions in salaries and certain benefits to the owners of the
Founding Companies. To the extent certain of the owners of the Founding
Companies have agreed prospectively to reductions in salary, bonuses and
benefits, these reductions have been reflected in the pro forma combined
statement of operations. With respect to other potential cost savings, Enfinity
has not and cannot quantify these savings until completion of the combination of
the Founding Companies. It is anticipated that these savings will be offset by
costs related to Enfinity's new corporate management and by the costs associated
with being a public company. However, these costs, like the savings they offset,
cannot be accurately quantified at this time. Neither the anticipated savings
nor the anticipated costs have been included in the pro forma financial
information of Enfinity.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma combined financial data do not purport to represent
what Enfinity's financial position or results of operations would actually have
been if such transactions in fact had occurred on those assumed dates and are
not necessarily representative of Enfinity's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control or management, historical combined results may not be comparable
to, or indicative of, future performance. The unaudited pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus. See 'Risk
Factors' included elsewhere herein.
F-3
<PAGE>
<PAGE>
ENFINITY CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AIR ENERGY
ENFINITY BRANDT SYSTEMS SYSTEMS
-------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............... $ 20 $ 4,120 $ -- $ --
Accounts receivable:
Trade................... -- 7,937 28,096 10,214
Retainage............... -- 3,511 4,790 568
Other................... -- -- -- 109
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. -- 523 3,124 293
Inventories................ -- 49 874 262
Due from related parties
and stockholders.......... -- -- -- --
Prepaid expenses and other
current assets............ -- 1 394 120
Deferred income taxes...... -- -- 390 155
---- ------- ------- -------
Total current assets.... 20 16,141 37,668 11,721
Property and equipment, net... -- 49 4,541 958
Goodwill...................... -- -- -- --
Due from related parties and
stockholders................. -- -- -- --
Other assets.................. 52 154 195 741
---- ------- ------- -------
Total assets............ $ 72 $16,344 $42,404 $13,420
---- ------- ------- -------
---- ------- ------- -------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt............ $-- $ -- $8,087 $ 11
Accounts payable and
accrued expenses.......... -- 4,854 15,261 6,292
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... -- 5,421 10,420 314
Deferred revenue........... -- -- -- 377
Income taxes payable....... -- -- 154 441
Notes payable to
stockholders.............. 70 -- -- --
---- ------- ------- -------
Total current
liabilities........... 70 10,275 33,922 7,435
Long-term debt, net of current
portion...................... -- -- 2,029 2,409
Obligations under capital
lease, net of current
portion...................... -- -- 32 24
Deferred income taxes......... -- -- 331 --
Other long-term liabilities... -- 1,521 -- --
---- ------- ------- -------
Total liabilities....... 70 11,796 36,314 9,868
---- ------- ------- -------
Stockholders' equity:
Common stock............... -- 1 31 --
Additional paid-in
capital................... 2 -- -- 1,622
Net unrealized gain on
securities available for
sale...................... -- -- -- 32
Retained earnings.......... -- 4,547 6,059 2,898
Less: Treasury stock....... -- -- -- (1,000)
---- ------- ------- -------
Total stockholders'
equity................ 2 4,548 6,090 3,552
---- ------- ------- -------
Total liabilities and
stockholders'
equity................ $ 72 $16,344 $42,404 $13,420
---- ------- ------- -------
---- ------- ------- -------
<PAGE>
<CAPTION>
HILL MECHANICAL
NEMSI LEE YORK SERVICES
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............... $ 226 $ 74 $ 207 $ 34
Accounts receivable:
Trade................... 6,408 $ 6,628 5,393 4,773
Retainage............... 518 1,140 2,494 725
Other................... 191 177 -- 58
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. 409 1,281 385 279
Inventories................ 339 109 164 121
Due from related parties
and stockholders.......... -- 234 -- --
Prepaid expenses and other
current assets............ 48 100 262 51
Deferred income taxes...... 104 523 453 7
-------- ------- --------- -----
Total current assets.... 8,243 10,266 9,358 6,048
Property and equipment, net... 3,112 3,597 1,562 603
Goodwill...................... 2,179 -- -- --
Due from related parties and
stockholders................. -- 79 298 --
Other assets.................. 44 640 175 143
-------- ------- --------- -----
Total assets............ $13,578 $14,582 $11,393 $6,794
-------- ------- --------- -----
-------- ------- --------- -----
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt............ $ 1,541 $ 1,324 $ 240 $ 54
Accounts payable and
accrued expenses.......... 4,131 3,800 5,440 1,903
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 973 1,931 1,969 522
Deferred revenue........... -- 388 249 --
Income taxes payable....... 171 120 482 246
Notes payable to
stockholders.............. -- -- -- --
-------- ------- --------- -----
Total current
liabilities........... 6,816 7,563 8,380 2,725
Long-term debt, net of current
portion...................... 2,118 75 371 --
Obligations under capital
lease, net of current
portion...................... 311 2,667 143 --
Deferred income taxes......... 89 -- 10 375
Other long-term liabilities... 1,137 -- -- --
-------- ------- --------- -----
Total liabilities....... 10,471 10,305 8,904 3,100
-------- ------- --------- -----
Stockholders' equity:
Common stock............... 7 38 869 --
Additional paid-in
capital................... 2,206 38 -- 7
Net unrealized gain on
securities available for
sale...................... -- 134 -- --
Retained earnings.......... 894 4,067 1,620 3,687
Less: Treasury stock....... -- -- -- --
-------- ------- --------- -----
Total stockholders'
equity................ 3,107 4,277 2,489 3,694
-------- ------- --------- -----
Total liabilities and
stockholders'
equity................ $13,578 $14,582 $11,393 $6,794
-------- ------- --------- -----
-------- ------- --------- -----
<CAPTION>
MERGER OFFERING
ADJUSTMENTS PRO ADJUSTMENTS
(SEE FORMA (SEE AS
AIRCOND NOTE 3) COMBINED NOTE 3) ADJUSTED
-------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............... $ 2,610 $ -- $ 7,291 $ 938 $ 8,229
Accounts receivable:
Trade................... 5,130 -- 74,579 -- 74,579
Retainage............... -- -- 13,746 -- 13,746
Other................... -- -- 535 -- 535
Costs and estimated
earnings in excess of
billings on uncompleted
contracts................. 403 -- 6,697 -- 6,697
Inventories................ 413 -- 2,331 -- 2,331
Due from related parties
and stockholders.......... 53 -- 287 -- 287
Prepaid expenses and other
current assets............ 297 -- 1,273 -- 1,273
Deferred income taxes...... -- 397 2,029 -- 2,029
-------- ----------- -------- ----------- --------
Total current assets.... 8,906 397 108,768 938 109,706
Property and equipment, net... 4,761 19,183 -- 19,183
Goodwill...................... -- 111,057 113,236 -- 113,236
Due from related parties and
stockholders................. -- -- 377 -- 377
Other assets.................. 985 93 3,222 -- 3,222
-------- ----------- -------- ----------- --------
Total assets............ $14,652 $ 111,547 $244,786 $ 938 $245,724
-------- ----------- -------- ----------- --------
-------- ----------- -------- ----------- --------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt............ $ 791 $ (47) $12,001 $ (86) $11,915
Accounts payable and
accrued expenses.......... 2,182 -- 43,863 -- 43,863
Billings in excess of costs
and estimated earnings on
uncompleted contracts..... 402 -- 21,952 -- 21,952
Deferred revenue........... 586 -- 1,600 -- 1,600
Income taxes payable....... -- -- 1,614 -- 1,614
Notes payable to
stockholders.............. -- 88,921 88,991 (88,991) --
-------- ----------- -------- ----------- --------
Total current
liabilities........... 3,961 88,874 170,021 (89,077) 80,944
Long-term debt, net of current
portion...................... 1,217 (1,331) 6,888 (6,425) 463
Obligations under capital
lease, net of current
portion...................... 3,299 -- 6,476 -- 6,476
Deferred income taxes......... -- -- 805 -- 805
Other long-term liabilities... 148 -- 2,806 -- 2,806
-------- ----------- -------- ----------- --------
Total liabilities....... 8,625 87,543 186,996 (95,502) 91,494
-------- ----------- -------- ----------- --------
Stockholders' equity:
Common stock............... 250 (1,102) 94 80 174
Additional paid-in
capital................... -- 83,400 87,275 96,360 183,635
Net unrealized gain on
securities available for
sale...................... -- (166) -- -- --
Retained earnings.......... 5,777 (59,128) (29,579) -- (29,579)
Less: Treasury stock....... -- 1,000 -- -- --
-------- ----------- -------- ----------- --------
Total stockholders'
equity................ 6,027 24,004 57,790 96,440 154,230
-------- ----------- -------- ----------- --------
Total liabilities and
stockholders'
equity................ $14,652 $ 111,547 $244,786 $ 938 $245,724
-------- ----------- -------- ----------- --------
-------- ----------- -------- ----------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<PAGE>
ENFINITY CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
AIR ENERGY MECHANICAL
BRANDT SYSTEMS SYSTEMS NEMSI LEE HILL YORK SERVICES AIRCOND
------- ------- ------- ------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $50,435 $90,969 $54,228 $39,357 $39,681 $34,170 $ 28,279 $27,648
Cost of revenues................... 42,032 75,149 45,893 31,217 30,316 26,551 24,511 18,080
------- ------- ------- ------- ------- --------- ---------- -------
Gross profit............... 8,403 15,820 8,335 8,140 9,365 7,619 3,768 9,568
Selling, general and administrative
expenses......................... 5,287 11,370 6,869 7,237 7,325 7,089 2,530 7,799
Amortization of goodwill, net...... (636) -- -- 60 -- -- -- --
------- ------- ------- ------- ------- --------- ---------- -------
Income from operations......... 3,752 4,450 1,466 843 2,040 530 1,238 1,769
Other (income) expense:
Interest expense............... 12 636 265 451 521 75 10 329
Interest income................ (175) -- (5) -- (44) (5) (11) (94)
Other, net..................... (1) -- (24) 2 (187) (72) (119) 6
------- ------- ------- ------- ------- --------- ---------- -------
Income before provision for income
taxes............................ 3,916 3,814 1,230 390 1,750 532 1,358 1,528
Provision for income taxes......... -- 1,608 554 186 685 170 543 456
------- ------- ------- ------- ------- --------- ---------- -------
Net income......................... $ 3,916 $2,206 $ 676 $ 204 $ 1,065 $ 362 $ 815 $1,072
------- ------- ------- ------- ------- --------- ---------- -------
------- ------- ------- ------- ------- --------- ---------- -------
Net income per share, basic and
diluted..........................
Shares used in computing pro forma
basic net income per share (see
Note 5)..........................
Shares used in computing pro forma
diluted net income per share (see
Note 5)..........................
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
(SEE NOTE 4) COMBINED
------------ ---------
<S> <C> <C>
Revenues........................... $ -- $364,767
Cost of revenues................... -- 293,749
------------ ---------
Gross profit............... 71,018
Selling, general and administrative
expenses......................... (6,075)(A) 49,194
(237)(B)
Amortization of goodwill, net...... 2,776 (C) 2,200
------------ ---------
Income from operations......... 3,536 19,624
Other (income) expense:
Interest expense............... (749)(D) 1,550
Interest income................ -- (334)
Other, net..................... -- (395)
------------ ---------
Income before provision for income
taxes............................ 4,285 18,803
Provision for income taxes......... 4,199(E) 8,401
------------ ---------
Net income......................... $ 86 $ 10,402
------------ ---------
------------ ---------
Net income per share, basic and
diluted.......................... $0.60
----------
----------
Shares used in computing pro forma
basic net income per share (see
Note 5).......................... 17,276,056
----------
----------
Shares used in computing pro forma
diluted net income per share (see
Note 5).......................... 17,321,377
----------
----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1 -- GENERAL
Enfinity Corporation ('Enfinity') was founded in 1997 to provide energy and
indoor environmental systems and services to commercial, industrial and
institutional clients.
The historical financial statements reflect the financial position and
results of operations of Enfinity and the Founding Companies and were derived
from the respective Enfinity and Founding Company financial statements where
indicated. The periods included in these financial statements for all of the
individual Founding Companies, with the exception of Air Systems, are as of and
for the year ended December 31, 1997. The periods included in these financial
statements for Air Systems are as of and for the year ended February 28, 1998.
The audited historical financial statements included elsewhere herein have been
included in accordance with Staff Accounting Bulletin No. 80.
NOTE 2 -- ACQUISITION OF FOUNDING COMPANIES
Concurrently with and as a condition to the closing of the Offering,
Enfinity will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers will be accounted for using the purchase method of
accounting with Brandt being treated as the accounting acquiror in accordance
with Staff Accounting Bulletin No. 97 and APB 16. The consideration paid to
Brandt of $13.4 million in cash and 1,523,171 shares of Common Stock (equal to
$15.4 million in stock valued at an assumed initial public offering price
of $13.50, less a 25% discount from the assumed offering price due to
restrictions on the sale and transferability of the Common Stock issued to
Founding Company stockholders) has been recorded as a distribution.
The following table sets forth the consideration to be paid in cash, shares
of Common Stock and options to purchase shares of Common Stock to the
stockholders of each of the Founding Companies. For purposes of computing the
estimated purchase price for accounting purposes, the value of shares is based
upon an assumed initial public offering price of $13.50, less a 25% discount
from the assumed offering price due to restrictions on the sale and
transferability of the Common Stock to be acquired by the stockholders of the
Founding Companies. The purchase price has been allocated to the assets and
liabilities acquired based on their respective carrying values, as those are
deemed to represent the fair market value of such assets and liabilities. The
allocation of the purchase price is considered preliminary until such time as
the closing of this Offering and consummation of the Mergers. The Company does
not anticipate that the final allocation of the purchase price will differ
significantly from that presented.
<TABLE>
<CAPTION>
SHARES OF VALUE OF VALUE OF TOTAL
FOUNDING COMPANY CASH(1) COMMON STOCK SHARES OPTIONS CONSIDERATION
- ------------------------------------------------- ------- ------------ -------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Air Systems...................................... $18,932 1,402,397 $14,199 $1,103 $ 34,234
Energy Systems................................... 6,938 720,566 7,296 -- 14,234
NEMSI............................................ 8,085 841,275 8,518 -- 16,603
Lee.............................................. 11,664 1,296,275 13,125 -- 24,789
Hill York........................................ 7,122 821,209 8,315 -- 15,437
Mechanical Services.............................. 6,111 678,948 6,874 -- 12,985
Aircond.......................................... 8,641 960,129 9,721 -- 18,362
------- ------------ -------- -------- -------------
$67,493 6,720,799 $68,048 $1,103 $ 136,644
------- ------------ -------- -------- -------------
------- ------------ -------- -------- -------------
</TABLE>
- ------------
(1) The number of shares of Common Stock to be issued to the Stockholders of the
Founding Companies is fixed. If the initial public offering price is higher
than the assumed offering price, the cash consideration will vary
proportionately. For example, a $1.00 increase over the assumed
(footnotes continued on next page)
F-6
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(footnotes continued from previous page)
offering price will result in a $6.0 million increase in the aggregate cash
consideration paid to the Founding Company Stockholders.
NOTE 3 -- UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments (in thousands):
<TABLE>
<CAPTION>
MERGER OFFERING
ADJUSTMENTS TOTAL ADJUSTMENTS
-------------------------------- MERGER -----------------
(A) (B) (C) (D) ADJUSTMENTS (E) (F)
---- ------- -------- ------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.................................... $-- $ -- $ -- $ -- $ -- $96,440 $(95,502)
Deferred taxes............................................... 397 -- -- -- 397 -- --
---- ------- -------- ------- ----------- ------- --------
Total current assets..................................... 397 -- -- -- 397 96,440 (95,502)
Goodwill, net................................................ -- -- 111,057 -- 111,057 -- --
Other assets................................................. 93 -- -- -- 93 -- --
---- ------- -------- ------- ----------- ------- --------
Total assets............................................. $490 $ -- $111,057 $ -- $ 111,547 $96,440 $(95,502)
---- ------- -------- ------- ----------- ------- --------
---- ------- -------- ------- ----------- ------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.............................................. $-- $ -- $ -- $ (47) $ (47) $ -- $ (86)
Payable to stockholders...................................... -- 8,043 80,878 -- 88,921 -- (88,991)
---- ------- -------- ------- ----------- ------- --------
Total current liabilities................................ -- 8,043 80,878 (47) 88,874 -- (89,077)
Long-term debt............................................... -- -- -- (1,331) (1,331) -- (5,208)
Payable to related parties................................... -- -- -- -- -- -- (1,217)
---- ------- -------- ------- ----------- ------- --------
Total liabilities........................................ -- 8,043 80,878 (1,378) 87,543 -- (95,502)
---- ------- -------- ------- ----------- ------- --------
Stockholders' equity:
Common stock............................................. -- -- (1,102) -- (1,102) 80 --
Additional paid-in capital............................... -- -- 82,022 1,378 83,400 96,360 --
Unrealized gain on securities............................ -- -- (166) -- (166) -- --
Retained earnings........................................ 490 (8,043) (51,575) -- (59,128) -- --
Treasury stock........................................... -- -- 1,000 -- 1,000 -- --
---- ------- -------- ------- ----------- ------- --------
Total stockholders' equity........................... 490 (8,043) 30,179 1,378 24,004 96,440 --
---- ------- -------- ------- ----------- ------- --------
Total liabilities and stockholders' equity........... $490 $ -- $111,057 $ -- $ 111,547 $96,440 $(95,502)
---- ------- -------- ------- ----------- ------- --------
---- ------- -------- ------- ----------- ------- --------
<CAPTION>
TOTAL
OFFERING
ADJUSTMENTS
-----------
<S> <C>
ASSETS
Cash and cash equivalents.................................... $ 938
Deferred taxes............................................... --
-----------
Total current assets..................................... 938
Goodwill, net................................................ --
Other assets................................................. --
-----------
Total assets............................................. $ 938
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.............................................. $ (86)
Payable to stockholders...................................... (88,991)
-----------
Total current liabilities................................ (89,077)
Long-term debt............................................... (5,208)
Payable to related parties................................... (1,217)
-----------
Total liabilities........................................ (95,502)
-----------
Stockholders' equity:
Common stock............................................. 80
Additional paid-in capital............................... 96,360
Unrealized gain on securities............................ --
Retained earnings........................................ --
Treasury stock........................................... --
-----------
Total stockholders' equity........................... 96,440
-----------
Total liabilities and stockholders' equity........... $ 938
-----------
-----------
</TABLE>
- ------------
(A) Reflects the deferred tax assets to be established upon the conversion of
Brandt and Aircond from S Corporation status to C Corporation status.
(B) Reflects (i) distributions paid to the stockholders of Brandt, Lee, Hill
York, Mechanical Services and Aircond, including the planned distribution
of S Corporation earnings at Brandt and Aircond and (ii) payment of $1.3
million in liquidation value of preferred stock to stockholders of Energy
Systems.
(C) Reflects (i) the purchase of Air Systems, Energy Systems, NEMSI, Lee, Hill
York, Mechanical Services and Aircond by Brandt, consisting of $67.5
million in cash, 6,720,799 shares of Common Stock valued at $10.13 per
share (or a total of $68.0 million) and stock options valued at $1.1
million for a total estimated purchase price of $136.6 million, resulting
in an excess purchase price over the fair value of assets acquired of
$113.2 million. A net adjustment of $111.1 million results as $2.1
million of goodwill already exists in the accounts of one of the Founding
Companies. (The shares have been valued based upon an assumed initial
public offering price of $13.50, less a 25% discount from the assumed
offering price due to restrictions on the sale and transferability of the
Common Stock to be issued to stockholders of the Founding Companies); (ii)
distribution to Brandt stockholders of the consideration paid
of $13.4 million in cash and $15.4 million in stock (valued at
$10.13 per share) to Brandt stockholders; and (iii) issuance of 525,333
shares of Common Stock to executives as incentive to join Enfinity and
consideration to provide services in connection with the completion of this
Offering. As such services are effectively internal, i.e., these employees
will continue with the combined company, the
(footnotes continued on next page)
F-7
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(footnotes continued from previous page)
value of the shares is recorded as compensation expense of the combined
group upon issuance and completion of this Offering.
(D) Reflects the repayment of certain indebtedness of the Founding Companies by
certain individual stockholders pursuant to the Merger Agreements.
(E) Reflects the cash proceeds from the issuance of 8,000,000 shares of Common
Stock net of estimated expenses of this Offering (based on an estimated
initial public offering price of $13.50 per share). Expenses of this
Offering primarily consist of the underwriting discount, accounting fees,
legal fees and printing expenses. The 587,074 shares issued to external
consultants who were retained exclusively to assist the combining companies
in the completion of this Offering have been recorded as offering costs.
These external consultants have provided services primarily in capital
raising and consulting with respect to this Offering and are recorded on
that basis in the Unaudited Pro Forma Combined Financial Statements.
(F) Reflects the use of Offering proceeds to pay (i) the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the mergers; (ii) distributions of $6.7 million paid to the
stockholders of Brandt, Lee, Hill York, Mechanical Services and Aircond;
(iii) payment of $1.3 million in liquidation value of preferred stock to
stockholders of Energy Systems; and (iv) repayment of $6.5 million of
indebtedness of certain of the Founding Companies.
NOTE 4 -- UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
(A) Reflects a reduction in total compensation derived from contractual
agreements which establish the compensation of certain owners of the
Founding Companies subsequent to this Offering, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997(1)
--------------------
(IN THOUSANDS)
<S> <C>
Brandt.............................................................. $ 353
Air Systems......................................................... 1,407
Energy Systems...................................................... 283
NEMSI............................................................... 590
Lee................................................................. 1,026
Hill York........................................................... 968
Mechanical Services................................................. 312
Aircond............................................................. 1,136
-------
$6,075
-------
-------
</TABLE>
- ------------
(1) Except for Air Systems, which is for the year ended February 28, 1998.
------------------------
Pursuant to the terms of employment agreements to be entered into upon the
consummation of the Mergers, the owners of the Founding Companies will be
eligible for performance-based bonuses of up to 100% of their respective annual
base salaries. The Company expects that these bonuses will only be paid if
earnings increase to a level substantially in excess of pro forma combined
earnings for the year ended December 31, 1997. The bonuses paid historically to
the owners of Founding Companies were awarded based on the owners' discretion
and compensation expense has been reduced accordingly in the pro forma
adjustments. The NEMSI adjustment does not reflect the elimination of a
one-time, non-cash compensation charge of $665,000 resulting from issuance of
stock to employees.
F-8
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(B) Reflects the elimination of excess profit sharing contributions of $237,000
which are to be terminated in accordance with the Merger Agreements.
(C) Reflects the amortization of $113.2 million of goodwill to be recorded as a
result of the Mergers over a 40-year estimated life, net of amortization
expense already recorded in the accounts of one of the Founding Companies.
(D) Reflects the net reduction in interest expense associated with long-term
debt to be paid by stockholders and from the proceeds of this Offering, as
follows: $220,000 at Air Systems, $419,000 at NEMSI and $110,000 at Aircond.
(E) Reflects the incremental provision for federal and state income taxes
assuming all entities were subject to federal and state income tax and
relating to the other statements of operations adjustments and for income
taxes on S Corporation income.
NOTE 5 -- NET INCOME PER SHARE
The shares used in computing pro forma basic net income per share include:
(i) 1,112,407 shares issued to consultants to and management of Enfinity; (ii)
8,243,970 shares to be issued to the stockholders of the Founding Companies in
connection with the Mergers; and (iii) 7,919,680 shares representing the number
of shares sold in this Offering necessary to pay the $80.9 million cash portion
of the consideration for the Mergers, repay $6.5 million of indebtedness of the
Founding Companies, pay distributions of $6.7 million to certain Founding
Company stockholders, pay $1.3 million of liquidation value of preferred stock
at Energy Systems and pay the underwriting discount and estimated expenses of
this Offering. In addition, the number of shares used to compute pro forma
diluted net income per share includes 45,321 shares (using the treasury stock
method) related to dilution attributable to options to purchase Common Stock of
the Company at an exercise price below the assumed initial public offering
price. The options will be issued by the Company in exchange for existing
options to purchase shares of common stock of one of the Founding Companies.
F-9
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
ENFINITY CORPORATION:
The stock split described in Note 1 to the financial statements has not
been consummated at May 13, 1998. When it has been consummated, we will be in
position to furnish the following report:
In our opinion, the accompanying balance sheet presents fairly, in all
material respects, the financial position of Enfinity Corporation at
December 31, 1997, in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
May 13, 1998
F-10
<PAGE>
<PAGE>
ENFINITY CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Cash............................................................................................... $ 20
---
---
Total current assets..................................................................... 20
Deferred offering costs............................................................................ 52
---
Total assets............................................................................. $ 72
---
---
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to stockholders and related parties........................................................ $ 70
---
Total liabilities........................................................................ 70
---
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, no shares outstanding.............
Common stock, $.01 par value, 49,000,000 shares authorized, 15 shares outstanding.............
Additional paid-in capital.................................................................... 2
---
Total stockholders' equity...............................................................
2
---
Total liabilities and stockholders' equity $72
---
---
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Enfinity Corporation ('Enfinity' or the 'Company') was founded in 1997 to
provide energy and indoor environmental systems and services to commercial,
industrial and institutional clients. Enfinity intends to acquire eight
companies (the 'Mergers'), upon consummation of an initial public offering (the
'Offering') of its common stock.
Enfinity has not conducted any operations, and all activities to date have
related to the Offering and the Mergers. The Company's cash balances were
generated from the initial capitalization of the Company and advances made by
certain of its shareholders and the Founding Companies. Accordingly statements
of operations and cash flows for this period would not provide meaningful
information and have been omitted. Enfinity is dependent upon the Offering to
execute the pending Mergers. There is no assurance that the pending Mergers
discussed will be completed or that Enfinity will be able to generate future
operating revenues.
In connection with the organization and initial capitalization of Enfinity,
the Company issued 15 shares of common stock at $100.00 per share.
On , the Board of Directors approved several actions in
connection with the Offering. These actions included a 36,804.93-for-1 stock
split which will occur prior to the effectiveness of the Company's Registration
Statement. All common stock related information included in the financial
statements has been adjusted to reflect this split.
NOTE 2 -- STOCKHOLDERS' EQUITY
1998 LONG-TERM INCENTIVE PLAN
The Company's Board of Directors has adopted and the Company's stockholders
have approved the adoption of the Company's 1998 Long-Term Incentive Plan (the
'Incentive Plan'). The maximum number of shares of Common Stock that may be
subject to outstanding awards may not be greater than that number of shares
equal to thirteen and one-half (13.5%) of the outstanding shares of common stock
minus the number of shares previously issued pursuant to awards granted under
the Incentive Plan. Awards may be settled in cash, shares, other awards or other
property, as determined by the Compensation Committee of the Company's Board of
Directors (the 'Committee'). The Incentive Plan generally will be administered
by the Committee which is empowered to select the individuals who will receive
awards and the terms and conditions of those awards, including exercise prices
for options and other exercisable awards, vesting and forfeiture conditions (if
any), performance conditions, the extent to which awards may be transferable,
and periods during which awards will remain outstanding.
The Company intends to file a registration statement on Form S-8 under the
Securities Act registering the issuance of shares upon exercise of options
granted under the Incentive Plan. The Company expects to grant stock options to
purchase shares of Common Stock to key employees of the Company at the initial
public offering price upon consummation of this Offering.
In addition to authorizing grants of awards to any eligible person in the
discretion of the Committee, the Incentive Plan authorizes automatic grants of
non-qualified stock options to non-employee directors. Under these provisions,
each person serving or who has agreed to serve as a non-employee director at the
commencement of this Offering will be granted an initial option to purchase
10,000 shares, and thereafter each person who becomes a non-employee director
will be granted an initial option to purchase 10,000 shares upon such person's
initial election as a director. In addition, these provisions authorize the
automatic annual grant to each non-employee director of an option to purchase
5,000 shares at each annual meeting of stockholders following this Offering;
provided, however, that a director will not be granted an annual option if he or
she was granted an initial option during the preceding three months. These
options will have an exercise price equal to the fair market value of Common
Stock on the date of grant (in the case of options granted to individual
non-employee
F-12
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
directors, the exercise price will be the initial public offering price per
share), and the options will expire at the earlier of 10 years after the date of
grant or one year after the date the person ceases to serve as a director of the
Company for any reason. These options generally become exercisable one year
after the date of grant.
NOTE 3 -- NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ('SFAS') No. 123, 'Accounting
for Stock-Based Compensation,' allows entities to choose between a new fair
value based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ('APB No. 25').
Entities electing to remain with the accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting has been applied. The Company will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future consolidated financial statements.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 128, 'Earnings per Share' ('SFAS No. 128'). For the
Company, SFAS No. 128 is effective for the year ended December 31, 1997. SFAS
No. 128 simplifies the standards required under current accounting rules for
computing earnings per share and replaces the presentation of primary earnings
per share and fully diluted earnings per share with a presentation of basic
earnings per share ('basic EPS') and diluted earnings per share ('diluted EPS').
Basic EPS excludes dilution and is determined by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities and other contracts to issue common stock were exercised or
converted into common stock. Diluted EPS is computed similarly to fully diluted
earnings per share under current accounting rules. The implementation of SFAS
No. 128 is not expected to have a material effect on the Company's earnings per
share as determined under current accounting rules.
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, 'Reporting Comprehensive
Income.' SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. The Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
requires that an enterprise (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. The
Statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
1998.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, 'Disclosures About Segments of
an Enterprise and Related Information.' SFAS No. 131 establishes standards for
reporting information about operating segments in annual financial statements
and in interim financial reports issued to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major
F-13
<PAGE>
<PAGE>
ENFINITY CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
customers. In general, such information must be reported for externally in the
same manner used for internal management purposes. SFAS No. 131 is effective for
financial statements issued for periods beginning after December 15, 1997. In
the initial year of adoption, comparative information for earlier years must be
restated. Since SFAS No. 131 only requires disclosure of certain information,
its adoption will not affect the Company's financial position or results of
operations.
NOTE 4 -- SUBSEQUENT EVENTS (UNAUDITED)
Enfinity has signed definitive agreements to acquire all of the outstanding
common stock of eight companies ('Founding Companies') to be consummated
contemporaneously with this Offering. The Founding Companies are Brandt
Mechanical Services, Inc. ('Brandt'), Air Systems, Inc. ('Air Systems'), Energy
Systems Industries, Inc. ('Energy Systems'), New England Mechanical Services,
Inc. ('NEMSI'), Lee Company ('Lee'), Hill York Corporation and Hill York
Services Corporation (collectively, 'Hill York'), Mechanical Services of
Orlando, Inc. ('Mechanical Services') and Aircond Corp. ('Aircond').
Concurrently with and as a condition to the closing of the Offering,
Enfinity will acquire all of the outstanding capital stock of the Founding
Companies. The Mergers will be accounted for using the purchase method of
accounting with Brandt being treated as the accounting acquiror in accordance
with Staff Accounting Bulletin No. 97 and APB 16. The consideration paid to
Brandt of $13.4 million in cash and $15.4 million in stock (valued at an assumed
initial public offering price of $13.50, less a 25% discount from the assumed
offering price due to restrictions on the sale and transferability of the Common
Stock issued to Founding Company shareholders) has been recorded as a
distribution.
The following table sets forth the consideration to be paid in (a) cash,
(b) shares of Common Stock and (c) options to purchase shares of Common Stock to
the stockholders of each of the Founding Companies. For purposes of computing
the estimated purchase price for accounting purposes, the value of shares is
based upon an assumed initial public offering price of $13.50, less a 25%
discount from the assumed offering price due to restrictions on the sale and
transferability of the Common Stock to be acquired by the stockholders of the
Founding Companies. The purchase price has been allocated to the assets and
liabilities acquired based on their respective carrying values, as those are
deemed to represent the fair market value of such assets and liabilities. The
allocation of the purchase price is considered preliminary until such time as
the closing of this Offering and consummation of the Mergers. The Company does
not anticipate that the final allocation of the purchase price will differ
significantly from that presented.
<TABLE>
<CAPTION>
VALUE OF VALUE OF TOTAL
FOUNDING COMPANY CASH(1) SHARES OPTIONS CONSIDERATION
- ----------------------------------------------------------------- ------- -------- -------- -------------
<S> <C> <C> <C> <C>
Air Systems...................................................... $18,932 $14,199 $1,103 $ 34,234
Energy Systems................................................... 6,938 7,296 -- 14,234
NEMSI............................................................ 8,085 8,518 -- 16,603
Lee.............................................................. 11,664 13,125 -- 24,789
Hill York........................................................ 7,122 8,315 -- 15,437
Mechanical Services.............................................. 6,111 6,874 -- 12,985
Aircond.......................................................... 8,641 9,721 -- 18,362
------- -------- -------- -------------
$67,493 $68,048 $1,103 $ 136,644
------- -------- -------- -------------
------- -------- -------- -------------
</TABLE>
- ------------
(1) The number of shares of Common Stock to be issued to the Stockholders of the
Founding Companies is fixed. If the initial public offering price is higher
than the assumed offering price, the cash consideration will vary
proportionately. For example, a $1.00 increase over the assumed offering
price will result in a $5.7 million increase in the aggregate cash
consideration paid to the Founding Company Stockholders.
F-14
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
BRANDT MECHANICAL SERVICES, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Brandt
Mechanical Services, Inc. ('Brandt') and its subsidiaries at December 31, 1996
and 1997, and the results of their operations and their cash flows for the
period from May 25 to December 31, 1995 and for the years ended December 31,
1996 and 1997 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Brandt's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 23, 1998
F-15
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1996 1997
------------------ ------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 3,811 $ 4,120
Accounts receivable:
Trade............... 3,652 7,937
Retainage........... 1,893 3,511
Costs and estimated
earnings in excess of
billings on uncompleted
contracts.............. 423 523
Inventories.............. -- 49
Prepaid expenses and
other current assets... 6 1
------- ----------
Total current
assets............ 9,785 16,141
Property and equipment, net... 83 49
Other assets.................. 41 154
------- ----------
Total assets........ $ 9,909 $16,344
------- ----------
------- ----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Short-term debt.......... $ 86 $ --
Accounts payable and
accrued expenses....... 4,849 4,854
Billings in excess of
costs and estimated
earnings on uncompleted
contracts.............. 1,351 5,421
------- ----------
Total current
liabilities....... 6,286 10,275
Long-term debt, net of current
portion..................... 121 --
Negative goodwill............. 2,157 1,521
------- ----------
Total liabilities... 8,564 11,796
------- ----------
Commitments and contingencies
Stockholders' equity:
Common stock, Class A
voting, $0.01 par
value, 20,000 shares
authorized, 800 and 738
shares issued and
outstanding,
respectively; Class B
nonvoting, $0.01 par
value, 20,000 shares
authorized, 200 and 262
shares issued and
outstanding,
respectively........... 1 1
Retained earnings........ 1,344 4,547
------- ----------
Total stockholders'
equity............ 1,345 4,548
------- ----------
Total liabilities
and stockholders'
equity............ $ 9,909 $16,344
------- ----------
------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-16
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
FOR THE PERIOD DECEMBER 31,
FROM MAY 25 TO ------------------
DECEMBER 31, 1995 1996 1997
----------------- ------- -------
<S> <C> <C> <C>
Revenues................................................................ $15,869 $38,723 $50,435
Cost of revenues........................................................ 13,170 31,932 42,032
----------------- ------- -------
Gross profit....................................................... 2,699 6,791 8,403
Selling, general and administrative expenses............................ 2,562 6,764 5,287
Accretion of negative goodwill.......................................... (371) (636) (636)
----------------- ------- -------
Income from operations............................................. 508 663 3,752
Other (income) expense:
Interest income, net............................................... (66) (135) (164)
Other income, net.................................................. (11) (26) --
----------------- ------- -------
Income before provision for income taxes................................ 585 824 3,916
Provision for income taxes.............................................. 24 41 --
----------------- ------- -------
Net income.............................................................. $ 561 $ 783 $ 3,916
----------------- ------- -------
----------------- ------- -------
Unaudited pro forma information:
Pro forma net income before provision for income taxes............. $ 3,916
Provision for income taxes......................................... 1,312
-------
Pro forma income (see Note 2)........................................... $ 2,604
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK COMMON RETAINED STOCKHOLDERS'
SHARES STOCK EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, May 25, 1995............................................. 1,000 $ 1 $-- $ 1
Net income................................................... -- -- 561 561
------ ------ -------- -------------
Balance, December 31, 1995........................................ 1,000 1 561 562
Net income................................................... -- -- 783 783
------ ------ -------- -------------
Balance, December 31, 1996........................................ 1,000 1 1,344 1,345
Distribution to stockholders................................. -- -- (713) (713)
Net income................................................... -- -- 3,916 3,916
------ ------ -------- -------------
Balance, December 31, 1997........................................ 1,000 $ 1 $4,547 $ 4,548
------ ------ -------- -------------
------ ------ -------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
FOR THE PERIOD DECEMBER 31,
FROM MAY 25 TO ----------------
DECEMBER 31, 1995 1996 1997
----------------- ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 561 $ 783 $3,916
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense............................................ -- 14 18
Accretion of negative goodwill.................................. (371) (636) (636)
Gain on sale of property and equipment.......................... (11) (26) --
Changes in operating assets and liabilities:
Accounts receivable........................................ (899) 157 (5,903)
Inventories................................................ 7 -- (49)
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... 52 (357) (100)
Prepaid expenses and other current assets.................. (2) (43) (108)
Accounts payable and accrued expenses...................... 1,038 1,950 5
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................... 314 474 4,070
------- ------ ------
Net cash provided by operating activities............. 689 2,316 1,213
------- ------ ------
Cash flows from investing activities:
Proceeds from sale of property and equipment......................... 11 26 16
Additions of property and equipment.................................. -- (97) --
------- ------ ------
Net cash provided by (used in) investing activities... 11 (71) 16
------- ------ ------
Cash flows from financing activities:
Payments of long-term debt........................................... -- (43) (207)
Distributions to stockholders........................................ -- -- (713)
------- ------ ------
Net cash used in financing activities................. -- (43) (920)
------- ------ ------
Net increase in cash and cash equivalents................................. 700 2,202 309
Cash and cash equivalents, beginning of period............................ 909 1,609 3,811
------- ------ ------
Cash and cash equivalents, end of period.................................. $ 1,609 $3,811 $4,120
------- ------ ------
------- ------ ------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................... $ 11 $ 20 $ 13
Cash paid for income taxes........................................... $ 41 $ 65 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-19
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Brandt Mechanical Services, Inc., ('Brandt'), founded in 1952, focuses on
performing large design and build construction projects and turnkey industrial
and special projects. Brandt primarily operates in Texas.
Brandt and its stockholders intend to enter into a definitive agreement
with Enfinity Corporation ('Enfinity'), pursuant to which all outstanding shares
of Brandt's common stock will be exchanged for cash and shares of Enfinity
common stock concurrently with the consummation of the initial public offering
(the 'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements represent the financial position,
results of operations and cash flows of Brandt Mechanical Services, Inc. and its
wholly-owned subsidiaries, M&Z Brandt Engineering Co., Inc., Brandt Service
Company, Metalair Industries, Inc. and Brandt Engineering Company of Arkansas
(collectively, the 'subsidiaries'). All intercompany transactions and balances
have been eliminated.
CASH AND CASH EQUIVALENTS
Brandt considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market based upon
specifically identified cost.
PROPERTY AND EQUIPMENT
Property and equipment, consisting of Company vehicles, are stated at cost,
and depreciation is computed using the straight-line method over a five-year
useful life.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
NEGATIVE GOODWILL
Effective May 25, 1995, through a series of transactions, all of the issued
and outstanding common stock of the subsidiaries was purchased by Brandt from
its former parent, which was a subsidiary of a company that had emerged from
bankruptcy in December 1994. The excess of the fair value of the assets acquired
over the acquisition cost was allocated to reduce all noncurrent assets. The
remaining excess ('negative goodwill') is being amortized using the straight
line method over a period of five years, which represents the estimated period
of benefit.
REVENUE RECOGNITION
Brandt recognizes revenue when services are performed except when work is
being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-
F-20
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of completion method measured by the percentage of costs incurred to total
estimated costs for each contract. Provisions for the total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job conditions, estimated profitability
and final contract settlements may result in revisions to costs and income and
their effects are recognized in the period in which the revisions are
determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on Brandt's experience with
similar contracts in recent years, the retainage balance will be collected in
the fiscal year ending December 31, 1998.
WARRANTY COSTS
Brandt warrants parts and labor for mechanical construction projects based
on contractual terms, generally for one year. A reserve for warranty costs is
recorded as part of the cost to complete each individual job.
INCOME TAXES
As of January 1, 1997, Brandt has elected S Corporation status as defined
by the Internal Revenue Code, whereby Brandt is not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their
share of Brandt's taxable earnings or losses in their personal tax returns.
Brandt will terminate its S Corporation status concurrently with the effective
date of the Offering.
For the periods prior to January 1, 1997, Brandt provided for deferred
taxes in accordance with Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' ('SFAS 109'). SFAS 109 requires an asset and
liability approach for financial accounting and reporting for income taxes based
on the difference between the financial statement and tax bases of assets and
liabilities.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with SFAS 109 as if Brandt had been
subject to federal and state income taxes for the entire periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Brandt to concentrations of
credit risk consist principally of trade accounts receivable. Brandt follows the
practice of filing statutory liens on construction projects where collection
problems are anticipated. The liens serve as collateral for trade receivables.
Brandt does not believe that it is subject to any unusual credit risk beyond the
normal credit risk attendant in its business.
NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, Brandt adopted Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.' Accordingly, in the event that facts and
circumstances indicate that property and equipment or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is
F-21
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required, the estimated future undiscounted cash flows associated with the asset
are compared to the asset's carrying amount to determine if a write-down to
market value is necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of Brandt.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------
IN YEARS 1996 1997
------------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Transportation equipment............................. 5 years $ 97 $ 77
Less -- Accumulated depreciation..................... (14) (28)
----- -----
Property and equipment, net.......................... $ 83 $ 49
----- -----
----- -----
</TABLE>
Depreciation expense was approximately $14,000 and $18,000 for the years
ended 1996 and 1997, respectively. There was no depreciation expense during the
period ended December 31, 1995.
NOTE 4 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress..................... $ 24,192 $ 35,508
Estimated earnings, net of losses........................... 2,449 3,622
-------- ---------
26,641 39,130
Less -- Billings to date.................................... (27,569) (44,028)
-------- ---------
$ (928) $ (4,898)
-------- ---------
-------- ---------
Costs and estimated earnings in excess of billings on
uncompleted contracts..................................... $ 423 $ 523
Billings in excess of costs and estimated earnings on
uncompleted contracts..................................... (1,351) (5,421)
-------- ---------
$ (928) $ (4,898)
-------- ---------
-------- ---------
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable, trade.......................................... $2,159 $3,732
Accrued compensation, benefits and other......................... 2,690 1,122
------ ------
Total....................................................... $4,849 $4,854
------ ------
------ ------
</TABLE>
NOTE 5 -- LONG-TERM DEBT
Debt at December 31, 1996 consisted of a subordinated note payable to the
prior stockholder. The debt was secured by the stock of Brandt's subsidiaries.
The balance of the note was payable in quarterly installments of approximately
$21,000 of principal plus interest at the prime lending rate. The note was paid
in full during the year ended December 31, 1997.
F-22
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Brandt has a $1,500,000 line of credit with a bank. The line of credit
expires June 1, 1998, bears interest at one percent above the bank's base
lending rate and has a commitment fee of 0.25% per annum. The line of credit is
secured by substantially all of the assets of Brandt and by the guarantees of
certain stockholders. Brandt has restrictive and various financial covenants
with which Brandt was in compliance at December 31, 1997. There was no balance
outstanding under this line of credit at December 31, 1996 or 1997.
NOTE 6 -- INCOME TAXES
As of January 1, 1997, Brandt elected S Corporation status as defined by
the Internal Revenue Code, whereby Brandt is not subject to taxation for federal
purposes. Under S Corporation status, the stockholders report their share of
Brandt's taxable earnings or losses in their personal tax returns. There were no
deferred tax balances to eliminate at the date Brandt ceased to be a taxable
enterprise.
Income tax expense related to the periods before Brandt's S Corporation
election is comprised of the following:
<TABLE>
<CAPTION>
MAY 25 TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current............................................... $ 24 $ 41
Deferred.............................................. -- --
--- ---
Total provision for income taxes................. $ 24 $ 41
--- ---
--- ---
</TABLE>
The provision for income taxes varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
MAY 25 TO -----------------------------------
DECEMBER 31, 1995 1996 1997
----------------------------- -------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax at the U.S. Federal statutory
rate...................................... $ 199 34.0% $ 280 34.0% $ 1,331 34.0%
Accretion of negative goodwill.............. (126) (21.5) (216) (26.2) (216) (5.5)
Earnings of S Corporation................... -- -- -- -- (1,115) (28.5)
Other....................................... (49) (8.4) (23) (2.8) -- --
------ ----------- ----- ----- ------- ------
Effective tax rate..................... $ 24 4.1% $ 41 5.0% $ -- -- %
------ ----------- ----- ----- ------- ------
------ ----------- ----- ----- ------- ------
</TABLE>
Temporary differences between the consolidated financial statement carrying
amounts and the consolidated tax basis of assets and liabilities that gave rise
to significant portions of the consolidated deferred tax amounts related to the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Net operating loss carryforwards................................... $ 233
Property, plant and equipment...................................... 17
-------
Deferred tax asset before valuation allowance...................... 250
Less -- Valuation allowance........................................ (250)
-------
Net deferred tax asset............................................. $--
-------
-------
</TABLE>
NOTE 7 -- LEASE COMMITMENTS
Brandt leases its primary office space from a partnership which is owned by
Brandt's stockholders. The lease expires on August 27, 2001. The rent paid under
this related-party lease is approximately
F-23
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$14,000 per month. Brandt leases two other facilities from third parties. These
leases, which expire on December 31, 1997 and June 30, 1999, have monthly
rentals of approximately $1,000 and $4,000, respectively.
Brandt also leases various equipment under non-cancelable operating leases
which expire from September 1997 to November 2001. Various of these equipment is
leased from a partnership which is owned by Brandt's stockholders. These leases
are for terms of 3 to 5 years.
Future minimum lease payments under these non-cancelable operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 369
1999............................................................................ 235
2000............................................................................ 74
2001............................................................................ 8
Thereafter...................................................................... --
-------
Total minimum lease payments............................................... $ 686
-------
-------
</TABLE>
NOTE 8 -- RELATED-PARTY TRANSACTIONS
As noted above, Brandt leases its primary office and warehouse facility and
various equipment from a partnership which is owned by Brandt's stockholders.
NOTE 9 -- EMPLOYEE BENEFIT PLAN
Brandt has a defined contribution profit sharing plan. The plan provides
for Brandt to match one-half of the first 6 percent contributed by each
employee. Total contributions by Brandt under the plan were approximately
$41,000, $180,000 and $204,000 for the periods ending December 31, 1995, 1996
and 1997, respectively. Brandt may also make discretionary contributions. No
discretionary contributions were made for the periods ending December 31, 1995,
1996 or 1997.
NOTE 10 -- FINANCIAL INSTRUMENTS
Brandt's financial instruments consist of cash and cash equivalents, a line
of credit and a note payable. Brandt believes that the carrying value of these
instruments on the accompanying balance sheet approximates their fair value.
NOTE 11 -- STOCKHOLDERS' EQUITY
As of December 31, 1997, Brandt had declared and paid distributions of
$713,000 to its stockholders, representing a partial distribution of Brandt's S
Corporation accumulated adjustment account related to the year ended December
31, 1997.
NOTE 12 -- STOCK OPTIONS
Effective November 1997, the Company's stockholders entered into option
agreements with certain employees allowing for the purchase of a total of 60
shares of the Company's Class B common stock from the stockholders. These
options vest upon the execution of a binding, definitive agreement pursuant to
which the Company is a part of a 'combining transaction,' as defined in the
agreements. Unvested options expire on June 30, 1998. Vested options expire five
years after the date of grant. The exercise price per share of $5,589 is
estimated to be the fair market value of the stock at the date of grant. No
compensation expense has been recorded for the year ended December 31, 1997.
F-24
<PAGE>
<PAGE>
BRANDT MECHANICAL SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- SUBSEQUENT EVENT (UNAUDITED)
Brandt and its stockholders have entered into a definitive agreement with
Enfinity pursuant to which Brandt will merge with a wholly owned subsidiary of
Enfinity. All outstanding shares of Brandt will be exchanged for cash and common
stock of Enfinity concurrently with the consummation of the initial public
offering of the common stock of Enfinity.
The Company will make cash distributions prior to the merger to clear the
Company's estimated S Corporation accumulated adjustment account. Had the
distributions related to the year ended December 31, 1997 been recorded at
December 31, 1997, the effect on the accompanying balance sheet would be an
increase in liabilities of $2,567,000 and a decrease in stockholders' equity of
$2,567,000.
F-25
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
AIR SYSTEMS, INC.
We have audited the accompanying balance sheet of Air Systems, Inc. ('Air
Systems') as of February 28, 1997 and 1998 and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended. These financial statements are the responsibility of Air
Systems' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Air Systems as of February
28, 1997 and 1998 and the results of its operations and its cash flows for each
of the three years in the period ended in conformity with generally accepted
accounting principles.
SHILLING AND KENYON, INC.
San Jose, California
April 27, 1998
F-26
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------
1997 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable:
Trade, net of allowance of $280 in 1997 and $250 in 1998, respectively............... $12,401 $28,096
Retainage............................................................................ 2,017 4,790
Costs and estimated earnings in excess of billings on uncompleted contracts............ 1,528 3,124
Inventories............................................................................ 402 874
Prepaid expenses and other current assets.............................................. 243 394
Deferred income taxes.................................................................. 354 390
------- -------
Total current assets.............................................................. 16,945 37,668
Property and equipment, net................................................................. 1,788 4,541
Other assets................................................................................ 205 195
------- -------
Total assets...................................................................... $18,938 $42,404
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................................................................... $ 1,950 $ 7,365
Current portion of long-term debt...................................................... 178 622
Current portion of obligations under capital lease..................................... 142 100
Accounts payable....................................................................... 4,293 10,811
Accrued expenses....................................................................... 3,369 4,450
Billings in excess of costs and estimated earnings on uncompleted contracts............ 3,446 10,420
Income taxes payable................................................................... 665 154
------- -------
Total current liabilities......................................................... 14,043 33,922
Long-term debt, net of current portion...................................................... 625 2,029
Obligations under capital lease, net of current portion..................................... 105 32
Deferred income taxes....................................................................... 281 331
------- -------
Total liabilities................................................................. 15,054 36,314
------- -------
Commitments................................................................................. -- --
Stockholders' equity:
Common stock, no par value; 10,000,000 shares authorized and 1,175,000 shares issued
and outstanding in 1997 and 1998...................................................... 31 31
Retained earnings...................................................................... 3,853 6,059
------- -------
Total stockholders' equity........................................................ 3,884 6,090
------- -------
Total liabilities and stockholders' equity........................................ $18,938 $42,404
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Revenues............................................................... $ 37,463 $ 55,528 $ 90,969
Cost of revenues....................................................... 29,527 44,098 75,149
------------ ------------ ------------
Gross profit...................................................... 7,936 11,430 15,820
Selling, general and administrative expenses........................... 6,449 8,232 11,370
------------ ------------ ------------
Income from operations............................................ 1,487 3,198 4,450
Other (income) expense:
Interest expense, net............................................. 190 228 636
Gain on sale of property and equipment............................ (24) (14) --
------------ ------------ ------------
Income before provision for income taxes............................... 1,321 2,984 3,814
Provision for income taxes............................................. 519 1,196 1,608
------------ ------------ ------------
Net income............................................................. $ 802 $ 1,788 $ 2,206
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON TOTAL
STOCK COMMON RETAINED STOCKHOLDERS'
SHARES STOCK EARNINGS EQUITY
--------- ------ -------- -------------
<S> <C> <C> <C> <C>
Balance, March 1, 1995.......................................... 1,234,000 $ 60 $1,263 $ 1,323
Repurchase of common stock................................. (59,000) (29) -- (29)
Net income................................................. -- -- 802 802
--------- ------ -------- -------------
Balance, February 29, 1996...................................... 1,175,000 31 2,065 2,096
Net income................................................. -- -- 1,788 1,788
--------- ------ -------- -------------
Balance, February 28, 1997...................................... 1,175,000 31 3,853 3,884
Net income................................................. -- -- 2,206 2,206
--------- ------ -------- -------------
Balance, February 28, 1998...................................... 1,175,000 $ 31 $6,059 $ 6,090
--------- ------ -------- -------------
--------- ------ -------- -------------
</TABLE>
F-29
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................ $ 802 $ 1,788 $ 2,206
Adjustments to reconcile net income to net cash provided by (used
for) operating activities:
Depreciation and amortization................................ 214 369 822
Gain on sale of property and equipment....................... (24) (14) --
Deferred income taxes........................................ 3 (4) 14
Changes in operating assets and liabilities:
Accounts receivable............................................... (3,380) (4,161) (15,695)
Retainage......................................................... (503) (1,062) (2,773)
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... (569) (530) (1,596)
Inventories....................................................... (38) (27) (472)
Prepaid expenses and other current assets......................... (94) (73) (151)
Accounts payable.................................................. 1,135 530 4,906
Accrued expenses.................................................. 1,382 933 1,081
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... (96) 1,988 6,974
Income taxes payable.............................................. (121) 535 (511)
------------ ------------ ------------
Net cash provided by (used for) operating activities......... (1,289) 272 (5,195)
Cash flows from investing activities:
Proceeds from sale of property and equipment...................... 32 4 --
Receipts of notes receivable...................................... 23 6 --
Other assets...................................................... (43) 22 10
Additions of property and equipment............................... (590) (1,146) (3,550)
------------ ------------ ------------
Net cash used in investing activities........................ (578) (1,114) (3,540)
Cash flows from financing activities:
Cash overdraft.................................................... 626 185 1,612
Borrowings from line of credit.................................... 1,350 300 5,415
Borrowings of long-term debt...................................... 207 630 2,259
Payments on long-term debt........................................ (221) (121) (411)
Payments on capital leases........................................ (66) (152) (140)
Repurchase of common stock........................................ (29) -- --
------------ ------------ ------------
Net cash provided by financing activities.................... 1,867 842 8,735
Net increase (decrease) in cash........................................ -- -- --
Cash, beginning and end of period...................................... $ -- $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest............................................ $ 192 $ 238 $ 640
Cash paid for income taxes........................................ $ 637 $ 665 $ 2,105
Additions under capital lease..................................... $ 61 $ -- $ 25
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Air Systems, Inc. ('Air Systems'), founded in 1974, specializes in the
design, engineering and installation of energy and indoor environmental systems
for commercial entities in northern California and performs additional services
in plumbing, process piping and sheet metal construction.
Air Systems and its stockholders intend to enter into a definitive
agreement with Enfinity Corporation ('Enfinity'), pursuant to which all
outstanding shares of Air Systems' common stock will be exchanged for cash and
shares of Enfinity common stock concurrently with the consummation of the
initial public offering (the 'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH
Air Systems considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market based upon
specifically identified cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements and equipment under capital leases are capitalized and
amortized over the lesser of the life of the lease or the estimated useful life
of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
REVENUE RECOGNITION
Air Systems recognizes revenue when services are performed except when the
work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of completion method
measured by the percentage of costs incurred to total estimated costs for each
contract. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on Air Systems' experience with
similar contracts in recent years, the retainage balance will be collected in
the fiscal year ending February 28, 1999.
WARRANTY COSTS
Air Systems warrants labor for the first year after installation on new air
conditioning and heating systems. Air Systems generally warrants labor for 30
days after servicing of existing air conditioning and heating systems. A reserve
for warranty costs is recorded as part of the cost to complete each individual
job.
F-31
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Air Systems accounts for certain income and expense items differently for
financial reporting and income tax purposes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS
109'). Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities applying enacted statutory tax rates in effect for the year in which
the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 -- NEW ACCOUNTING PRONOUNCEMENTS
Air Systems adopted Statement of Financial Accounting Standards No. 121,
'Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of.' Accordingly, in the event that facts and circumstances indicate
that property and equipment or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value is
necessary. Adoption of this standard did not have a material effect on the
financial position or results of Air Systems.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards ('SFAS') No. 123, 'Accounting
for Stock-Based Compensation,' allows entities to chose between a new fair value
based method of accounting for employee stock options or similar equity
instruments and the current intrinsic, value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25 ('APB No. 25').
Entities electing to remain with the Accounting in APB Opinion No. 25 must make
pro forma disclosures of net income and earnings per share as if the fair value
method of accounting has been applied. Air Systems will provide pro forma
disclosure of net income and earnings per share, as applicable, in the notes to
future financial statements.
NOTE 4 -- RECEIVABLES
Receivables at February 28, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable............................................................. $12,470 $27,770
Related party receivables....................................................... 115 520
Other receivables............................................................... 96 56
Less -- Allowance for doubtful accounts......................................... (280) (250)
------- -------
Accounts receivable, net................................................... $12,401 $28,096
------- -------
------- -------
</TABLE>
F-32
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts activity is as follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
------------ ------------
1996 1997 1998
------------ ---- ----
<S> <C> <C> <C>
Balance, beginning of year.............................................. $165 $285 $280
Charges to costs and expenses...................................... 161 18 (9)
Write-offs......................................................... (41) (23) (21)
------ ---- ----
Balance, end of year.................................................... $285 $280 $250
------ ---- ----
------ ---- ----
</TABLE>
NOTE 6 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL FEBRUARY 28,
LIVES ------------------
IN YEARS 1997 1998
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Shop equipment...................................................... 5 years $ 662 $ 1,550
Furniture and office equipment...................................... 3-7 years 790 1,491
Transportation equipment............................................ 3-5 years 2,208 3,485
Leasehold improvements.............................................. 3-5 years 266 969
------- -------
Total property and equipment................................... 3,926 7,495
Less -- Accumulated depreciation and amortization................... (2,138) (2,954)
------- -------
Property and equipment, net.................................... $ 1,788 $ 4,541
------- -------
------- -------
</TABLE>
Depreciation and amortization expense was approximately $214,000, $369,000,
and $822,000 for the years ended February 29, 1996 and February 28, 1997 and
1998, respectively.
NOTE 7 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accounts payable consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------
1997 1998
------ -------
(IN THOUSANDS)
<S> <C> <C>
Cash overdraft....................................................... $ 887 $ 2,499
Accounts payable..................................................... 3,406 8,312
------ -------
Total........................................................... $4,293 $10,811
------ -------
------ -------
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued compensation, benefits and other........................................... $2,102 $3,502
Other accrued expenses............................................................. 1,267 948
------ ------
Total......................................................................... $3,369 $4,450
------ ------
------ ------
</TABLE>
F-33
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Contracts in progress are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1997 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress....................................... $ 28,420 $ 54,725
Estimated earnings, net of losses............................................. 6,367 11,484
-------- --------
34,787 66,209
Less -- Billings to date...................................................... (36,705) (73,505)
-------- --------
$ (1,918) $ (7,296)
-------- --------
-------- --------
Costs and estimated earnings in excess of billings on uncompleted contracts... $ 1,528 $ 3,124
Billings in excess of costs and estimated earnings on uncompleted contracts... (3,446) (10,420)
-------- --------
$ (1,918) $ (7,296)
-------- --------
-------- --------
</TABLE>
NOTE 8 -- LINE OF CREDIT
Air Systems has a $10,000,000 line of credit with a bank. The line of
credit expires August 5, 1998 and bears interest at 0.75 percent above the
bank's base lending rate. The line of credit is secured by substantially all of
the assets of Air Systems and guaranteed by the majority stockholder.
Additionally, Air Systems has a $1,000,000 bank line of credit for the
purchase of property and equipment with a bank. The equipment line of credit
expires August 5, 1998 and bears interest at 1.25 percent above the bank's base
lending rate. On August 5, 1998 Air Systems has the option to convert the
outstanding balance under the line of credit to a term loan. There was no
outstanding balance on the line for the year ended February 28, 1998.
These loans have restrictive and various financial covenants with which Air
Systems was in compliance at February 28, 1998.
NOTE 9 -- LONG-TERM DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Commercial term loans, payable in monthly principal and interest installments
aggregating $44,278 with interest at 9.75%, maturing December, 2002, secured by
transportation equipment......................................................... $ 742 $1,803
Commercial term loan, payable in monthly principal installments of $8,563 with
interest at the bank's prime rate plus 1.25%, maturing August, 2001,
collateralized by various equipment of Air Systems............................... -- 360
Various notes payable, collateralized by transportation equipment, interest rates
ranging from 8.75% to 9.25%, payable in various installments through June,
2002............................................................................. 61 488
------ ------
803 2,651
Less -- Current portion............................................................ (178) (622)
------ ------
$ 625 $2,029
------ ------
------ ------
</TABLE>
F-34
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate maturities of long-term debt for the next five fiscal years are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
- ------------
<S> <C>
1999............................................................................. $ 622
2000............................................................................. 635
2001............................................................................. 646
2002............................................................................. 564
2003............................................................................. 184
-------
Total....................................................................... $ 2,651
-------
-------
</TABLE>
NOTE 10 -- LEASES
OPERATING LEASES
Air Systems leases its primary office and warehouse space from the
President and controlling stockholder of Air Systems. The leases expire
principally in December 31, 2001. The rents paid under these related-party
leases is approximately $29,000 per month.
Air Systems also leases other facilities and storage space from unrelated
parties under non-cancelable operating leases which expire from October 31,1998
to January 31, 2000. The rent paid under these leases is approximately $11,000
per month.
Future minimum lease payments under these non-cancelable operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
- ------------
<S> <C>
1999............................................................................. $ 430
2000............................................................................. 423
2001............................................................................. 348
2002............................................................................. 298
2003............................................................................. 48
Thereafter....................................................................... 1,176
-------
Total minimum lease payments................................................ $ 2,723
-------
-------
</TABLE>
Rent expenses under these leases totaled approximately $257,000, $251,000,
and $359,000 for the years ended February 29, 1996 and February 28, 1997 and
1998, respectively.
CAPITAL LEASES
Air Systems has accounted for certain leased equipment by capitalizing the
equipment and establishing a related obligation under the terms of the lease
involved. The following is an analysis for leased equipment under capital leases
by major class:
<TABLE>
<CAPTION>
ESTIMATED FEBRUARY 28,
USEFUL LIVES --------------
IN YEARS 1997 1998
------------ ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Class of property:
Transportation equipment......................................... 4 $ 650 $ 650
Office equipment................................................. 4-5 46 81
----- -----
Total equipment............................................. 696 731
Less -- Accumulated amortization................................. (436) (568)
----- -----
Leased property, net........................................ $ 260 $ 163
----- -----
----- -----
</TABLE>
F-35
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amortization expense related to leased property under capital leases
totaled approximately $135,000, $139,000, and $132,000 for the years ended
February 29, 1996 and February 28, 1997 and 1998, respectively, and has been
included in depreciation and amortization expense in the accompanying financial
statements.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of net minimum lease payments at
February 28, 1998 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28,
- ------------
<S> <C>
1999................................................................................. $ 109
2000................................................................................. 19
2001................................................................................. 7
2002................................................................................. 6
-------
Total minimum lease payments......................................................... 141
Less -- Amount representing interest................................................. 9
-------
$ 132
-------
-------
</TABLE>
NOTE 11 -- RELATED-PARTY TRANSACTIONS
Air Systems leases its primary office and warehouse facility from the
president and controlling stockholder of Air Systems. (See Note 10.)
The controlling stockholder of Air Systems is a 70% owner of another
related mechanical contractor located in Sacramento, California, incorporated in
January, 1996. Air Systems provides administrative services to this related
party which amounted to approximately $4,000 and $18,000 for the years ended
February 28, 1997 and 1998, respectively. At February 28, 1997 and 1998, Air
Systems has a receivable of $115,000 and $520,000 due from this related party,
respectively. (See Note 4.)
NOTE 12 -- INCOME TAXES
Income tax expense differs from amounts currently payable because certain
revenues and expenses are reported in the income statement in periods which
differ from those in which they are subject to taxation.
The major components of Air Systems' provision for income taxes are as
follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
------------ ----------------
1996 1997 1998
------------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................................... $397 $ 933 $1,031
State......................................................... 119 267 335
------ ------ ------
516 1,200 1,366
Deferred........................................................... 3 (4) 242
------ ------ ------
Total provision for income taxes.............................. $519 $1,196 $1,608
------ ------ ------
------ ------ ------
</TABLE>
F-36
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes varied from the statutory federal income tax rate
as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
-------------- -------------------------------
1996 1997 1998
-------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax at the U.S. Federal statutory rate....... $449 34.0% $1,044 35.0% $1,335 35.0%
State taxes, net of federal benefit................. 81 6.2 178 6.0 236 6.2
Other............................................... (11) (.9) (26) (.9) 37 1.0
---- ---- ------ ---- ------ ----
Effective tax rate............................. $519 39.3% $1,196 40.1% $1,608 42.2%
---- ---- ------ ---- ------ ----
---- ---- ------ ---- ------ ----
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------
1997 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Receivables..................................................................... $ 93 $ 108
Warranty........................................................................ 141 127
Accrued vacation compensation................................................... 28 40
State taxes..................................................................... 92 115
----- -----
Total deferred tax asset................................................... 354 390
Deferred tax liabilities:
Property and equipment.......................................................... (153) (331)
Accrued liabilities............................................................. (128) --
----- -----
Total deferred tax liability............................................... (281) (331)
----- -----
Net deferred tax asset............................................................... $ 73 $ 59
----- -----
----- -----
</TABLE>
NOTE 13 -- BENEFIT PLANS
Air Systems has a profit-sharing plan covering substantially all employees
not covered by a collective bargaining agreement. Contributions are determined
annually at the discretion of the Board of Directors and may not exceed 15% of
eligible compensation. For the years ended February 29, 1996 and February 28,
1997 and 1998, Air Systems made no contributions.
Air Systems has a 401(k) plan which covers substantially all employees who
are not covered by a collective bargaining agreement. Employer contributions are
discretionary and determined annually by management. The contributions are
limited to the proportionate share of employee contributions, up to 15% of
eligible compensation. For the years ended February 28, 1997 and 1998, the
discretionary employer contribution were approximately $82,000 and $177,000
respectively. (None for 1996).
Union employees are covered by multi-industry pension plans to which Air
Systems contributes monthly based on hours worked by each eligible employee. For
the years ended February 29, 1996 and February 28, 1997 and 1998, Air Systems
contributed approximately $1,360, $2,127 and $3,404 to the plans. Separate
actuarial calculations of Air Systems' position are not available with respect
to the multi-employer plans.
F-37
<PAGE>
<PAGE>
AIR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- MAJOR CUSTOMERS AND VENDOR
The following table summarizes the annual percentage contribution to
revenues by customer whose percentage exceeds 10% of revenues.
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
REVENUES BALANCE
-------------------------------- ---------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
------------ ---------------- ------------ -----------------
1996 1997 1998 1996 1997 1998
------------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Customer A.......................... 30% 41% 50% $4,156 $6,353 $18,343
Customer B.......................... -- 15% 16% -- 2,585 6,717
</TABLE>
The following table summarizes the annual percentage contribution to cost
of revenues by vendor whose percentage exceeds 10% of cost of revenues:
<TABLE>
<CAPTION>
ACCOUNTS PAYABLE
COST OF REVENUES BALANCE
-------------------------------- --------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
------------ ---------------- ------------ ----------------
1996 1997 1998 1996 1997 1998
------------ ------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Vendor A............................. -- -- 21% $-- $ -- $ 188
</TABLE>
NOTE 15 -- FINANCIAL INSTRUMENTS
Air Systems' financial instruments consist of a line of credit and notes
payable. Air Systems believes that the carrying value of these instruments on
the accompanying balance sheet approximates their fair value due to their
nature.
NOTE 16 -- SUBSEQUENT EVENTS (UNAUDITED)
Air Systems and its stockholders have entered into a definitive agreement
with Enfinity pursuant to which Air Systems will merge with a wholly owned
subsidiary of Enfinity. All outstanding shares of Air Systems will be exchanged
for cash and common stock of Enfinity concurrently with the consummation of the
initial public offering of the common stock of Enfinity.
On March 1, 1998, the Board of Directors approved a 2,350 to 1 stock split.
All common stock related information included in the financial statements has
been adjusted to reflect this split.
On March 1, 1998, Air Systems adopted an Incentive Stock Option Plan and
reserved 235,000 shares available under the plan. On April 1, 1998, 50,000
options were granted at an exercise price of $20 per share.
F-38
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
ENERGY SYSTEMS INDUSTRIES, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Energy
Systems Industries, Inc. ('Energy Systems') and its subsidiaries at December 31,
1996 and 1997, and the results of their operations and their cash flows for each
of the three years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Energy Systems'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 23, 1998
F-39
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 134 $ --
Accounts receivable:
Trade, net of allowance of $36 and $54 in 1996 and 1997, respectively.............. 6,744 10,214
Retainage.......................................................................... 282 568
Other receivables.................................................................. 12 109
Costs and estimated earnings in excess of billings on uncompleted contracts............. 180 293
Inventories............................................................................. 227 262
Prepaid expenses and other current assets............................................... 263 120
Deferred income taxes................................................................... 154 155
------ -------
Total current assets............................................................... 7,996 11,721
Property and equipment, net.................................................................. 1,106 958
Other assets................................................................................. 731 741
------ -------
Total assets....................................................................... $9,833 $13,420
------ -------
------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital lease...................................... $ 11 $ 11
Accounts payable........................................................................ 2,687 4,161
Accrued expenses........................................................................ 742 1,305
Accrued payroll and related costs....................................................... 667 826
Billings in excess of costs and estimated earnings on uncompleted contracts............. 325 314
Unearned revenue........................................................................ 380 377
Income taxes payable.................................................................... 277 441
------ -------
Total current liabilities.......................................................... 5,089 7,435
Line of credit............................................................................... 1,429 2,409
Obligations under capital lease, net of current portion...................................... 35 24
------ -------
Total liabilities.................................................................. 6,553 9,868
------ -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 100,000 shares authorized, 1,346 shares issued and
outstanding with a liquidation value of $1,300,000..................................... -- --
Common stock, $.10 par value; 300,000 shares authorized and 2,500 issued, 776.21 and
636.40 shares outstanding in 1996 and 1997, respectively............................... -- --
Additional paid-in capital.............................................................. 1,622 1,622
Net unrealized gain on securities available for sale.................................... -- 32
Retained earnings....................................................................... 2,222 2,898
Less: Treasury stock, 1,724 and 1,864 shares in 1996 and 1997, respectively, at cost.... (564) (1,000)
------ -------
Total stockholders' equity......................................................... 3,280 3,552
------ -------
Total liabilities and stockholders' equity......................................... $9,833 $13,420
------ -------
------ -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues......................................................................... $44,177 $48,069 $54,228
Cost of revenues................................................................. 36,498 40,299 45,893
------- ------- -------
Gross profit................................................................ 7,679 7,770 8,335
Selling, general and administrative expenses..................................... 6,537 6,948 6,869
------- ------- -------
Income from operations...................................................... 1,142 822 1,466
Other (income) expense:
Interest expense............................................................ 275 252 265
Interest income............................................................. (6) (5) (5)
Income from unconsolidated joint venture.................................... (67) (89) 9
Realized gain on sale of investments........................................ -- -- (56)
Other....................................................................... 15 42 23
------- ------- -------
Income before provision for income taxes......................................... 925 622 1,230
Provision for income taxes....................................................... 423 293 554
------- ------- -------
Net income....................................................................... $ 502 $ 329 $ 676
------- ------- -------
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
PREFERRED COMMON PAID-IN RETAINED GAIN ON TREASURY STOCKHOLDERS'
STOCK STOCK CAPITAL EARNING INVESTMENT STOCK EQUITY
--------- ------ ---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994.............. -- -- $1,622 $1,391 $-- $ (215) $ 2,798
Purchase of treasury stock......... -- -- -- -- -- (216) (216)
Net income......................... -- -- -- 502 -- -- 502
--------- ------ ---------- -------- ---------- -------- -------------
Balance, December 31, 1995.............. -- -- 1,622 1,893 -- (431) 3,084
Purchase of treasury stock......... -- -- -- -- -- (133) (133)
Net income......................... -- -- -- 329 -- -- 329
--------- ------ ---------- -------- ---------- -------- -------------
Balance, December 31, 1996.............. -- -- 1,622 2,222 -- (564) 3,280
Purchase of treasury stock......... -- -- -- -- -- (436) (436)
Unrealized gain on investments,
net.............................. -- -- -- -- 32 -- 32
Net income......................... -- -- -- 676 -- -- 676
--------- ------ ---------- -------- ---------- -------- -------------
Balance, December 31, 1997.............. -- -- $1,622 $2,898 $ 32 $ (1,000) $ 3,552
--------- ------ ---------- -------- ---------- -------- -------------
--------- ------ ---------- -------- ---------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1995 1996 1997
------- ------ -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................... $ 502 $ 329 $ 676
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation expense.................................................... 228 236 217
Equity in earnings of unconsolidated joint venture...................... (67) (89) 9
Bad debt expense........................................................ 61 140 83
Deferred income taxes................................................... (87) (107) (33)
Changes in operating assets and liabilities:
Accounts receivable................................................ (2,284) 1,348 (3,936)
Prepaid expense and other current assets........................... 51 (77) 143
Inventories........................................................ 18 76 (35)
Costs and estimated earnings in excess of billings on uncompleted
contracts....................................................... 59 (72) (113)
Other assets....................................................... -- (23) (3)
Accounts payable................................................... 1,394 (783) 1,474
Accrued expenses and payroll costs................................. 373 (425) 722
Billings in excess of costs and estimated earnings on uncompleted
contracts....................................................... 88 18 (11)
Unearned revenue................................................... (53) 91 (3)
Income taxes payable............................................... (81) 114 164
------- ------ -------
Net cash provided by (used in) operating activities........... 202 776 (646)
------- ------ -------
Cash flows from investing activities:
Additions to property and equipment.......................................... (209) (124) (69)
Cash surrender value of officer's life insurance policy...................... (28) 8 (31)
Distributions received from unconsolidated joint venture..................... 24 48 69
Purchase of investments...................................................... (56) -- (16)
Proceeds on sale of investments.............................................. -- -- 82
Gain on sale of investments.................................................. -- -- (56)
------- ------ -------
Net cash used in investing activities......................... (269) (68) (21)
------- ------ -------
Cash flows from financing activities:
Net borrowings (repayments) of line of credit................................ 573 (844) 980
Payments under capital lease obligations..................................... (40) (11) (11)
Acquisition of treasury stock................................................ (216) (133) (436)
------- ------ -------
Net cash provided by (used in) financing activities........... 317 (988) 533
------- ------ -------
Net increase (decrease) in cash and cash equivalents.............................. 250 (280) (134)
Cash and cash equivalents, beginning of period.................................... 164 414 134
------- ------ -------
Cash and cash equivalents, end of period.......................................... $ 414 $ 134 $ --
------- ------ -------
------- ------ -------
Supplemental disclosure of cash flow information:
Cash paid for interest....................................................... $ 277 $ 240 $ 224
Cash paid for income taxes................................................... $ 602 $ 296 $ 576
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Energy Systems Industries, Inc. ('Energy Systems'), founded in 1947,
primarily performs outsourced facility services focusing on the on-site
maintenance of energy and indoor environmental systems.
Energy Systems and its stockholders intend to enter into a definitive
agreement with Enfinity Corporation ('Enfinity'), pursuant to which all
outstanding shares of Energy Systems' common stock will be exchanged for cash
and shares of Enfinity common stock concurrently with the consummation of the
initial public offering (the 'Offering') of the common stock of Enfinity.
Energy Systems' subsidiary, BTE Services, Inc., ceased its operations
during 1995. These operations were not deemed to be significant to the
consolidated financial position, operations or cash flows of Energy Systems.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Energy Systems Industries,
Inc. and its wholly-owned subsidiaries, Balco, Inc., Building Technology
Engineering, Inc., BTE Services, Inc. and Rollins, King & McKone & Associates,
Inc. All significant intercompany transactions and balances have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS
Energy Systems considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Energy
Systems, at times during the year, maintains cash in a financial institution
that may exceed the amount insured by the Federal Deposit Insurance Corporation.
INVESTMENTS
Energy Systems accounts for certain investments using Statement of
Financial Accounting Standards No. 115, 'Accounting for Certain Investments in
Debt and Equity Securities' ('SFAS No. 115'). This standard requires that
certain debt and equity securities be adjusted to market value at the end of
each accounting period. Unrealized market value gains and losses are charged to
earnings if the securities are traded for short-term profit. Otherwise, such
unrealized gains and losses are charged or credited to a separate component of
stockholders' equity. Investments that are not within the scope of SFAS No. 115
are carried at cost and have been included in Other Investments.
At December 31, 1997, all securities covered by SFAS No. 115 were
designated as available for sale. Accordingly, these securities are stated at
fair value, with unrealized gains and losses reported in a separate component of
stockholders' equity. Available for sale securities accounted for in accordance
with SFAS No. 115 at December 31, 1997 were considered nonmarketable at December
31, 1996, and were therefore carried at cost and included in Other Investments.
Realized gains and losses on sales of investments, as determined on a specific
identification basis, are included in the Consolidated Statement of Operations.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out ('FIFO') method.
F-44
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
STOCKHOLDERS EQUITY
Energy Systems stockholders' equity consists of common stock and redeemable
preferred stock. Holders of common stock are entitled to one vote per share and
are entitled to dividends at the discretion of the Board of Directors.
The holder of the redeemable preferred stock is entitled to one vote per
share on all matters upon which common stockholders are entitled to vote and is
not entitled to divedends. The redeemable preferred shares have a redemption
price of $1,300,000 in the aggregate. As described on Note 13, the preferred
stock is redeemable upon the death of the stockholder or the sale of the
Company. In connection with the issuance of the preferred shares, the Company
acquired a life insurance policy with a face value of $1,300,000 on the
principal holder of these shares. In the event of any liquidation, dissolution
or sale of the Company, the holder of the redeemable preferred stock shall be
paid the redemption price prior to payment to any other stockholders.
REVENUE RECOGNITION
Energy Systems recognizes revenue when services are performed except when
work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of-completion method
measured by the percentage of costs incurred to total estimated costs for each
contract. Provisions for the total estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Changes in job
performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on Energy Systems' experience
with similar contracts in recent years, the retention balance will be collected
in the upcoming fiscal year.
WARRANTY COSTS
Energy Systems warrants labor for the first year after installation on new
air conditioning and heating systems. Energy Systems generally warrants labor
for 30 days after servicing of existing air conditioning and heating systems. A
reserve for warranty costs is recorded as part of the cost to complete each
individual job.
UNEARNED INCOME
Unearned income represents the unexpired portion of contracts with
customers for service and maintenance.
F-45
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Energy Systems accounts for certain income and expense items differently
for financial reporting and income tax purposes in accordance with Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS
109'). Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities applying enacted statutory tax rates in effect for the year in which
the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Energy Systems to
concentrations of credit risk consist principally of trade accounts receivable.
Energy Systems does not believe that it is subject to any unusual credit risk
beyond the normal credit risk attendant in its business.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, Energy Systems adopted Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.' Accordingly, in the event
that facts and circumstances indicate that property and equipment or other
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of Energy Systems.
NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year............................................. $ 31 $ 45 $ 36
Charges to costs and expenses.......................................... 46 84 101
Write-offs............................................................. (32) (93) (83)
---- ---- ----
$ 45 $ 36 $ 54
---- ---- ----
---- ---- ----
</TABLE>
F-46
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------
IN YEARS 1996 1997
------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Equipment................................................. 5-10 years $ 104 $ 122
Furniture and office equipment............................ 5-7 years 1,451 1,494
Leased office equipment................................... 5-7 years 58 58
Motor vehicles............................................ 3-5 years 137 144
Leasehold improvements.................................... 3-20 years 1,405 1,405
Less -- Accumulated depreciation and amortization........ (2,049) (2,265)
------- -------
Property and equipment, net............................... $ 1,106 $ 958
------- -------
------- -------
</TABLE>
Depreciation expense was approximately $228,000, $236,000 and $217,000 for
the years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 5 -- MARKETABLE SECURITIES AVAILABLE FOR SALE
The available for sale securities at December 31, 1997 are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALZIED UNREALIZED
HOLDING HOLDING MARKET
COST GAINS LOSSES VALUE
---- ---------- ---------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Common stock......................................... $30 $ 52 -$- $ 82
---- --- --- ------
Total marketable securities available for
sale.......................................... $30 $ 52 -$- $ 82
---- --- --- ------
---- --- --- ------
</TABLE>
The difference between cost and market of $52,000 (less deferred taxes of
$20,000) was credited to a separate component of stockholders' equity called
'Net Unrealized Gain on Securities Available for Sale' at December 31, 1997.
Proceeds from sales of securities available for sale were approximately
$82,000 in 1997. In 1997, gross gains on the sale of securities available for
sale amounted to approximately $56,000. In 1996 and 1995, Energy Systems did not
have any securities available for sale.
F-47
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Energy Systems' installation contracts in progress are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress.................................. $ 2,958 $ 4,762
Estimated earnings, net of losses........................................ 477 390
------- -------
3,435 5,152
Less -- Billings to date................................................ (3,580) (5,173)
------- -------
$ (145) $ (21)
------- -------
------- -------
Costs and estimated earnings in excess of billings on uncompleted
contracts.............................................................. $ 180 $ 293
Billings in excess of costs and estimated earnings on uncompleted
contracts.............................................................. (325) (314)
------- -------
$ (145) $ (21)
------- -------
------- -------
</TABLE>
NOTE 7 -- LONG-TERM DEBT
Energy Systems maintains a line of credit of $3,500,000 which is secured by
accounts receivable, inventory and machinery and equipment. Interest is computed
at prime plus 0.5% per annum, (9.0% at December 31, 1997) and is payable
monthly. This agreement is scheduled to expire in January 1999. At December 31,
1996 and 1997, outstanding borrowings against this line of credit were
approximately $2,273,000, $1,429,000 and $2,409,000, respectively.
NOTE 8 -- LEASE COMMITMENTS
Energy Systems leases its main office facility under an agreement requiring
annual payments of approximately $169,000 through June 2000 and then
approximately $213,000 through June 2005. Of this facility, approximately 25% is
sub-leased to a third party under a lease agreement through 2001. Energy Systems
leases its office improvements and renovations from a related party. This lease
agreement requires annual payments of approximately $126,000 through 1998 and
then decreases to approximately $52,000 through May 1999, at which time the
lease expires.
Energy Systems entered into a five year lease agreement for the rental of
office space in Maryland. This lease required monthly lease payments of
approximately $4,000 through June 1997 and then increases by 3% each year until
June 2001, at which time the lease expires.
A summary of future minimum lease payments are as follows:
<TABLE>
<CAPTION>
TOTAL NET
LEASE RENTAL LEASE
YEAR ENDING DECEMBER 31 PAYMENTS INCOME PAYMENTS
- -------------------------------------------------------------- -------- ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
1998.......................................................... $ 345 $124 $ 221
1999.......................................................... 274 129 145
2000.......................................................... 244 136 108
2001.......................................................... 240 35 205
2002.......................................................... 213 -- 213
Thereafter.................................................... 531 -- 531
-------- ------ --------
Total future minimum lease payments...................... $1,847 $424 $1,423
-------- ------ --------
-------- ------ --------
</TABLE>
F-48
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Energy Systems has accounted for certain leased equipment by capitalizing
the equipment and establishing a related obligation under the terms of the lease
involved. Leased equipment recorded at December 31, 1996 and 1997 and related
accumulated amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Leased property under capital lease............................ $ 58 $ 58
Less -- Accumulated amortization............................... (14) (23)
---- ----
Leased equipment, net.......................................... $ 44 $ 35
---- ----
---- ----
</TABLE>
Future minimum lease payments under capital lease as of December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998................................................................ $15
1999................................................................ 15
2000................................................................ 10
</TABLE>
NOTE 9 -- INCOME TAXES
Income tax expense differs from amounts currently payable because certain
revenues and expenses are reported in the income statement in periods which
differ from those in which they are subject to taxation. The principle
differences in timing between the income statement and taxable income are shown
below.
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
FEDERAL STATE FEDERAL STATE FEDERAL STATE
------- ----- ------- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Current............................................. $ 357 $ 120 $ 278 $ 121 $ 454 $ 133
Deferred............................................ (41) (13) (68) (38) (25) (8)
------- ----- ------- ----- ------- -----
Total provision for income taxes............... $ 316 $ 107 $ 210 $ 83 $ 429 $ 125
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
</TABLE>
Reconciliation of the statutory tax rate and effective tax rate:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1995 1996 1997
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory rate........................ $315 34.0% $211 34.0% $418 34.0%
Increase (decrease) in rate resulting from:
State taxes, net of federal benefit........... (42) (4.5) (41) (6.6) (35) (2.8)
Nondeductible expenses:
Meals and entertainment....................... 14 1.5 15 2.4 17 1.4
Penalties..................................... 13 1.4 1 0.2 1 0.1
Officer's life insurance...................... 31 3.3 45 7.2 46 3.7
Dividend received deduction................... (15) (1.6) (21) (3.4) (17) (1.4)
State tax provision........................... 107 11.6 83 13.3 124 10.0
---- ---- ---- ---- ---- ----
Effective tax rate............................ $423 45.7% $293 47.1% $554 45.0%
---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ----
</TABLE>
F-49
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred income tax benefit in the balance sheets includes the
following amounts of deferred tax assets and liabilities:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax asset............................................ $322 $362
Deferred tax liability........................................ (35) (62)
---- ----
Net deferred tax assets....................................... $287 $300
---- ----
---- ----
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Allowance for bad debts....................................... $ 17 $ 20
Vacation pay accrual.......................................... 81 99
Accrual for estimated losses.................................. 56 56
Net fixed asset -- book/tax difference....................... 15 26
Accrued SERP.................................................. 87 94
Pension....................................................... 58 65
Service warranty.............................................. 8 2
Unconsolidated subsidiary..................................... (35) (42)
Unrealized gain on investments................................ -- (20)
---- ----
Net deferred tax assets.................................. $287 $300
---- ----
---- ----
</TABLE>
NOTE 10 -- EMPLOYEE BENEFIT PLAN
Energy Systems maintains two defined benefit pension plans. One plan covers
employees who are members of a bargaining unit and those who are employed in
other than an administrative capacity. Benefits for this plan are based on a
flat monthly rate times an employee's number of months of service. Effective
January 1, 1996, this plan was frozen to new participants and a 401(k) plan was
implemented.
The following tables set forth the plan's funded status and amounts
recognized in Energy Systems' statement of financial position at December 31,
1995, 1996 and 1997.
Actuarial present value of benefit obligations:
<TABLE>
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of approximately
$2,367,000, $2,353,000 and $2,504,000 in 1995, 1996 and 1997, respectively....... $ 2,464 $ 2,639
------- -------
------- -------
Projected benefit obligation for service rendered to date.......................... $(2,601) $(2,803)
Plan assets at fair value.......................................................... 2,671 3,015
------- -------
Plan assets in excess of projected benefit obligation (projected benefit obligation
in excess of plan assets)........................................................ 70 212
Unrecognized prior service costs................................................... (316) (294)
Unrecognized net loss from past experience different from that assumed............. 144 (34)
Unrecognized net transition asset.................................................. (100) (88)
------- -------
Accrued pension cost............................................................... $ (202) $ (204)
------- -------
------- -------
</TABLE>
F-50
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefit earned during the period................... $ 55 $ 83 $ 79
Interest cost on projected benefit obligation...................... 161 176 190
Estimated/Actual return on plan assets............................. (381) (289) (484)
Net amortization and deferral...................................... 164 56 232
-------- -------- --------
Net periodic pension cost (income)................................. $ (1) $ 26 $ 17
-------- -------- --------
-------- -------- --------
</TABLE>
For fiscal years 1995, 1996 and 1997, the weighted-average discount rate
and rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation were 8.3% and 5.0%,
respectively, for 1995, 7.0% and 5.0%, respectively, for 1996, and 7.3% and
5.0%, respectively, for 1997. The expected long-term rate of return on assets
used for purposes of the net periodic pension costs was 8.0% for 1995 and 1996
and 8.5% for 1997.
Energy Systems' second defined benefit plan covers all other employees of
Energy Systems, not covered in the plan previously described. The benefit
formula for this plan was amended as of November 1, 1993 and is based upon an
employee's years of service and career average earnings.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
----- -----
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of approximately
$755,000 and $824,000 at December 31, 1996 and 1997, respectively.............. $ 905 $ 993
----- -----
----- -----
Projected benefit obligation for service rendered to date........................ $(905) $(993)
Plan assets at fair value........................................................ 811 930
Projected benefit obligation in excess of plan assets............................ (94) (63)
Unrecognized prior service costs................................................. -- --
Unrecognized net loss from past experience different from that assumed........... 190 146
Unrecognized net transition asset................................................ (38) (34)
Additional minimum liability..................................................... -- (112)
----- -----
Prepaid pension cost (liability)................................................. $ 58 $ (63)
----- -----
----- -----
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period............................ $ 71 $-- $--
Interest cost on projected benefit obligation................................ 52 65 67
Estimated/Actual return on plan assets....................................... (95) (86) (135)
Net amortization and deferral................................................ 61 57 81
Recognition of curtailment loss.............................................. -- 69 --
---- ---- -----
Net periodic pension cost.................................................... $ 89 $105 $ 13
---- ---- -----
---- ---- -----
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% for 1995 and 1996 and
7.3% for 1997, and the expected long-term rate of return on assets used for
purposes of the net periodic pension costs was 8.0% for 1995, 1996 and 1997.
F-51
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 401(k) plan for bargaining unit employees that was implemented January
1, 1996 matches 10.0% of the first 5.0% of a participant's contribution to the
401(k) plan. Energy Systems' funding policy is to contribute annually the
maximum amount that can be deducted for Federal income tax purposes. For 1996
and 1997, this matching contribution totaled approximately $34,000 and $42,000,
respectively.
Energy Systems also maintains an employee stock-sharing plan and 401(k)
profit sharing plan for all administrative employees. Effective September 13,
1993, the trustees voted to amend the stock-sharing plan by cessation of
stock-sharing contributions to preclude the addition of new participants to the
stock-sharing portion of the plan and to provide for full vesting by
participants of their stock-sharing accounts.
Energy Systems has elected to contribute to the 401(k) profit-sharing plan
10.0% of a year's net income before income taxes that exceeds a 10.0% return on
its invested capital. For fiscal years 1995, 1996 and 1997, this contribution
totaled approximately $34,000, $10,000 and $25,000, respectively. In addition,
it is the present policy of Energy Systems to match 10.0% of the first 5.0% of a
participant's contribution to the 401(k) plan. These matching contributions
totaled approximately $20,000, $19,000 and $20,000 for 1995, 1996 and 1997,
respectively.
Energy Systems participates with other companies in making collectively
bargained contributions to a pension fund covering most of its union employees.
The Multi-Employer Pension Plan Amendments Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans. Separate actuarial calculations of the Company's
position are not available with respect to the multi-employer plans.
NOTE 11 -- FINANCIAL INSTRUMENTS
Energy Systems' financial instruments consist of cash and cash equivalents,
a line of credit, notes payable and debt. Energy Systems believes that the
carrying value of these instruments on the accompanying balance sheet
approximates their fair value.
NOTE 12 -- STOCK REDEMPTION AGREEMENT
In connection with the issuance of preferred stock, Energy Systems has
acquired a life insurance policy on the life of the principal holder of these
shares. The insurance policy's face value is $1,300,000. Energy Systems has
agreed to redeem the preferred stock upon the death of that stockholder.
NOTE 13 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
During 1992, Energy Systems, along with several unrelated companies within
the industry, formed a company, HVAC Compensation Corporation, in a joint effort
to acquire and provide worker's compensation insurance to those in the group.
The primary purpose of this entity is to collect premiums from the member
companies and process and pay claims. Premiums collected, plus any earnings on
the premiums in excess of claims paid and projected to be paid, are returned to
the member companies in the form of a dividend. These dividends are payable over
four years commencing two years after the close of the insurance company's
fiscal year. As of December 31, 1995, 1996 and 1997, Energy Systems' allocable
share of the projected dividends amounted to approximately $324,000, $367,000
and $288,000, respectively.
NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED)
Energy Systems and its stockholders have entered into a definitive
agreement with Enfinity pursuant to which Energy Systems will merge with a
wholly owned subsidiary of Enfinity. All
F-52
<PAGE>
<PAGE>
ENERGY SYSTEMS INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
outstanding shares of Energy Systems will be exchanged for cash and common stock
of Enfinity concurrently with the consummation of the initial public offering of
the common stock of Enfinity.
In January 1998, the Board of Directors approved the issuance of 141 shares
of Energy Systems stock worth approximately $963,000 to a key employee. The
employee executed an $80,000 promissory note payable to Energy Systems which
matures at the earlier of January 12, 2003 or upon the employee's termination
with Energy Systems. The excess of the fair value of the shares (estimated for
value of $963,000) and the employee's cost of $80,000 will be recorded as
compensation expense in 1998. In addition, a cash bonus of approximately
$453,000 was granted to the employee in 1998 to cover the income tax cost
associated with the stock award.
Effective January 1, 1998, Energy Systems changed the structure of its
investment in HVAC Compensation Corporation (see Note 13). Energy Systems'
investment in HVAC was converted into one non-voting share of preferred stock in
a captive insurance company. Energy Systems will continue to receive the value
of excess premiums over costs in the form of dividends from the captive
insurance company, similar to the previous arrangement with HVAC.
Energy Systems amended its Revolving Credit and Security Agreement
effective January 30, 1998. The agreement, as amended, terminates on January 31,
1999 and interest will be computed at prime plus 0.25%.
F-53
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
NEW ENGLAND MECHANICAL SERVICES, INC.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of New England Mechanical Services,
Inc. ('NEMSI') at December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of NEMSI's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
May 13, 1998
F-54
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................................. $ 141 $ 226
Accounts receivable:
Trade, (net of allowance for doubtful accounts of $134 and $106 in 1996 and 1997,
respectively).................................................................... 4,920 6,408
Retainage......................................................................... 350 518
Other receivables................................................................. 64 191
Costs and estimated earnings in excess of billings on uncompleted contracts............ 399 409
Inventories............................................................................ 329 339
Prepaid expenses and other current assets.............................................. 69 48
Deferred income taxes.................................................................. 78 104
------- -------
Total current assets......................................................... 6,350 8,243
Property and equipment, net................................................................. 2,274 3,112
Goodwill.................................................................................... 2,239 2,179
Other assets................................................................................ 30 44
------- -------
Total assets................................................................. $10,893 $13,578
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................................................................... $ 500 $ 900
Current portion of long-term debt...................................................... 431 494
Current portion of obligations under capital lease..................................... 26 147
Accounts payable and accrued expenses.................................................. 3,497 4,131
Billings in excess of costs and estimated earnings on uncompleted contracts............ 483 973
Income taxes payable................................................................... 76 171
------- -------
Total current liabilities.................................................... 5,013 6,816
Long-term debt, net of current portion...................................................... 2,231 2,118
Obligations under capital lease, net of current portion..................................... 107 311
Deferred income taxes....................................................................... 85 89
Other long-term liabilities................................................................. 1,219 1,137
------- -------
Total liabilities............................................................ 8,655 10,471
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value -- 5,000 shares authorized and 620 and 559 shares issued
and outstanding at December 31, 1997 and 1996, respectively........................... 6 7
Additional paid-in capital............................................................. 1,542 2,206
Retained earnings...................................................................... 690 894
------- -------
Total stockholders' equity................................................... 2,238 3,107
------- -------
Total liabilities and stockholders' equity................................... $10,893 $13,578
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................................................... $30,457 $39,357
Cost of revenues............................................................................ 23,407 31,217
------- -------
Gross profit........................................................................... 7,050 8,140
Selling, general and administrative expenses................................................ 5,448 7,297
------- -------
Income from operations................................................................. 1,602 843
Other expense:
Interest expense....................................................................... 441 451
Other.................................................................................. 9 2
------- -------
Income before provision for income taxes.................................................... 1,152 390
Provision for income taxes.................................................................. 485 186
------- -------
Net income.................................................................................. $ 667 $ 204
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995............................... 559 $6 $1,542 $ 23 $ 1,571
Net income.......................................... -- -- -- 667 667
------ ------ ---------- -------- -------------
Balance, December 31, 1996............................... 559 6 1,542 690 2,238
Stock issued to employees........................... 61 1 664 -- 665
Net income.......................................... -- -- -- 204 204
------ ------ ---------- -------- -------------
Balance, December 31, 1997............................... 620 $7 $2,206 $894 $ 3,107
------ ------ ---------- -------- -------------
------ ------ ---------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 667 $ 204
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 487 629
Stock compensation.................................................................... -- 664
Gain on sale of property and equipment................................................ (3) (7)
Changes in operating assets and liabilities:
Accounts receivable................................................................ (2,075) (1,488)
Retainage.......................................................................... (135) (168)
Other receivables.................................................................. 7 (127)
Inventories........................................................................ 49 (10)
Costs and estimated earnings in excess of billings on uncompleted contracts........ 70 (10)
Prepaid expenses and other current assets.......................................... 24 21
Other assets....................................................................... 31 (14)
Accounts payable and accrued expenses.............................................. 1,174 634
Billings in excess of costs and estimated earnings on uncompleted contracts........ 109 490
Income taxes payable............................................................... 281 95
Other long-term liabilities........................................................ (74) (82)
Deferred income taxes.............................................................. 5 (22)
------- -------
Net cash provided by operating activities..................................... 617 809
------- -------
Cash flows used in investing activities:
Proceeds from sale of property and equipment............................................ 3 11
Purchases of property and equipment..................................................... (317) (783)
------- -------
Net cash used in investing activities......................................... (314) (772)
------- -------
Cash flows used in financing activities:
Borrowings from line of credit.......................................................... 200 400
Borrowings of long-term debt............................................................ 170 200
Payments of long-term debt.............................................................. (587) (552)
------- -------
Net cash (used in) provided by financing activities........................... (217) 48
------- -------
Net increase decrease in cash and cash equivalents........................................... 86 85
Cash and cash equivalents, beginning of period............................................... 55 141
------- -------
Cash and cash equivalents, end of period..................................................... $ 141 $ 226
------- -------
------- -------
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................................. $ 361 $ 343
Cash paid for income taxes.............................................................. $ 204 $ 300
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
New England Mechanical Services, Inc. ('NEMSI'), founded in 1966, primarily
specializes in performing design and build projects at manufacturing and
research facilities and on-site maintenance work at nuclear power plants.
NEMSI and its stockholders intend to enter into a definitive agreement with
Enfinity Corporation ('Enfinity'), pursuant to which all outstanding shares of
NEMSI's common stock will be exchanged for cash and shares of Enfinity common
stock concurrently with the consummation of an initial public offering (the
'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
NEMSI considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out ('FIFO') method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
REVENUE RECOGNITION
NEMSI recognizes revenues when services are performed except when work is
being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Contract costs include all direct material, subcontracts, and labor costs and
those indirect costs related to contract performance such as indirect labor,
supplies and tools, repairs and depreciation costs. Provisions for the total
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, estimated
profitability and final contract settlements may result in revisions to costs
and income and their effects are recognized in the period in which the revisions
are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on NEMSI's experience with
similar contracts in recent years, the retention balance will be collected in
the upcoming year.
WARRANTY COSTS
NEMSI warrants equipment, labor, and materials for the first year after
installation on new air conditioning and heating systems. NEMSI generally
warrants labor for 30 days after servicing of existing
F-59
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
air conditioning and heating systems. A reserve for warranty costs is recorded
as part of the cost to complete each individual job.
GOODWILL
Goodwill, representing the difference between total purchase price and the
fair value of assets and liabilities at the date of acquisition (see Note 10),
is being amortized on a straight-line basis over forty years. Accumulated
amortization is $165,000 and $225,000 at December 31, 1997 and 1996,
respectively.
INCOME TAXES
NEMSI records deferred tax assets and liabilities based upon the
differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes (see Note 9).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject NEMSI to concentrations of
credit risk consist principally of trade accounts receivable. NEMSI does not
believe that it is subject to any unusual credit risk beyond the normal credit
risk attendant in its business.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, NEMSI adopted Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of.' Accordingly, in the event that facts and
circumstances indicate that property and equipment or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to market value is necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of NEMSI.
NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts activity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year.............................................. $ 92 $134
Charges to costs and expenses........................................... 136 (2)
Write-offs.............................................................. (94) (26)
---- ----
Balance, end of year.................................................... $134 $106
---- ----
---- ----
</TABLE>
F-60
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------
IN YEARS 1996 1997
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and building.................................................. 30 years $ 1,327 $ 1,386
Transportation equipment........................................... 5 years 2,106 2,708
Machinery and equipment............................................ 5 years 596 686
Leasehold improvements............................................. 20 years 11 11
Furniture and fixtures............................................. 5 years 370 911
-------- --------
4,410 5,702
Less -- Accumulated depreciation and amortization.................. (2,136) (2,590)
-------- --------
Property and equipment, net................................... $ 2,274 $ 3,112
-------- --------
-------- --------
</TABLE>
Depreciation expense is approximately $569,000 and $427,000 for the years
ended 1997 and 1996, respectively.
NOTE 5 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
The following is a summary of costs, earnings and billings on uncompleted
contracts:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress........................................... $ 6,681 $ 9,835
Estimated earnings, net of losses................................................. 914 1,134
------- --------
7,595 10,969
Less -- Progress billings......................................................... (7,679) (11,533)
------- --------
$ (84) $ (564)
------- --------
------- --------
Costs and estimated earnings in excess of billings on uncompleted contracts....... $ 399 $ 409
Billings in excess of costs and estimated earnings on uncompleted contracts....... (483) (973)
------- --------
$ (84) $ (564)
------- --------
------- --------
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
(IN THOUSANDS)
<S> <C> <C>
Accounts payable, trade............................................................ $2,305 $3,048
Accrued compensation and benefits.................................................. 685 685
Other accrued expenses............................................................. 432 316
Consulting and non-compete agreements.............................................. 75 82
------ ------
$3,497 $4,131
------ ------
------ ------
</TABLE>
F-61
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- LONG-TERM DEBT
A summary of senior long-term debt follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Commercial term loans, payable in monthly principal installments of $20,100 plus
interest at prime plus 1.0% to 1.5%, maturing April 2003, secured by
substantially all assets of NEMSI................................................ $1,060 $ 1,081
Various notes payable, collateralized by vehicles, interest rates ranging from 6.3%
to 10.0%, payable in various installments through July 2002...................... 539 515
------ -------
1,599 1,596
Less -- Current maturities......................................................... (384) (443)
------ -------
$1,215 $ 1,153
------ -------
------ -------
</TABLE>
These loans contain certain restrictive covenants, including a restriction
on the payment of dividends.
Subordinated long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Note payable to former stockholder, monthly principal and interest payments of
$13,000 through March 2004, with a final payment of $586,000 due April 2004.
Interest is calculated at prime plus 1.5%, with a maximum rate of 12.0% and a
minimum of 6.0%.................................................................... $1,063 $1,016
Less -- Current maturities........................................................... (47) (51)
------ ------
$1,016 $ 965
------ ------
------ ------
</TABLE>
The above debt is subordinated to the senior long-term debt described
above. See Note 10 for other commitments to the former stockholder.
NEMSI has available a $1,000,000 line of credit with a bank. The balance
outstanding as of December 31, 1997 and 1996 totaled $900,000 and $500,000,
respectively. The line of credit expires July 31, 1998 and bears interest at the
prime rate in effect during the borrowing term plus 1.0%, or 9.3% at December
31, 1997. The line of credit is secured by substantially all assets of NEMSI.
Aggregate maturities of senior long-term debt and subordinated long-term
debt for the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998.............................................................. $ 494
1999.............................................................. 478
2000.............................................................. 308
2001.............................................................. 189
2002.............................................................. 116
------
Total....................................................... $1,585
------
------
</TABLE>
NOTE 7 -- EQUITY
During 1997, 61 shares of common stock were issued to various employees of
NEMSI. The shares had a fair value of $665,000 at the date of grant, which was
recorded as compensation expense and an increase to stockholders' equity.
F-62
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- LEASES
OPERATING LEASES
NEMSI has several operating lease commitments related to satellite offices
that have various expiration dates through August 2002. Approximate future
minimum lease commitments under these noncancelable leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------------
<S> <C>
1998............................................................... $ 79
1999............................................................... 70
2000............................................................... 21
2001............................................................... 22
2002............................................................... 13
----
Total........................................................ $205
----
----
</TABLE>
Rent expense under these leases totaled approximately $113,000 and $78,000
for the years ended December 31, 1997 and 1996, respectively.
CAPITAL LEASES
The following is an analysis for leased property under capital leases by
major class:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
IN YEARS 1996 1997
------------ ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Class of property:
Vehicles....................................................... 4-5 years $167 $573
Less -- Accumulated depreciation............................... 27 94
---- ----
Leased property, net...................................... $140 $479
---- ----
---- ----
</TABLE>
Depreciation expense related to leased property under capital leases
totaled approximately $67,000 and $23,000 for the years ended December 31, 1997
and 1996, respectively, and has been included in depreciation and amortization
expense in the accompanying financial statements.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998............................................................... $186
1999............................................................... 148
2000............................................................... 131
2001............................................................... 72
----
Total minimum lease payments....................................... 537
Less -- Amount representing interest............................... 79
----
$458
----
----
</TABLE>
F-63
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES
The major components of NEMSI's provision for income taxes for the years
ended December 31, 1996 and 1997 are summarized below:
<TABLE>
<CAPTION>
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal.................................................. $378 $154
State.................................................... 139 54
---- ----
517 208
Deferred...................................................... (32) (22)
---- ----
Total provision for income taxes......................... $485 $186
---- ----
---- ----
</TABLE>
A reconciliation of statutory tax rates to effective tax rate for the years
ended December 31, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. federal statutory rate.................................................... $382 34.0% $133 34.0%
Increase in rate resulting from:
State taxes, net of federal benefit....................................... 85 7.6 31 7.9
Non-deductible expenses, increase in cash surrender value of life
insurance and other..................................................... 18 1.6 22 5.7
---- ---- ---- ----
Effective rate............................................................ $485 43.2% $186 47.6%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
The components of the net deferred tax asset (liability) as of December 31,
1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued vacation compensation............................. $34 $ 46
Receivables............................................... 19 8
Other assets.............................................. 25 50
---- ----
Total deferred tax asset............................. 78 104
Property and equipment, net.................................... (85) (89)
---- ----
Net deferred tax asset (liability)............................. $(7) $ 15
---- ----
---- ----
</TABLE>
The actual tax provision differs from amounts obtained by applying the
statutory federal income tax rate to income before taxes primarily due to state
income taxes and certain non-deductible expenses.
NOTE 10 -- RELATED-PARTY TRANSACTIONS
On April 15, 1994, NEMSI's former majority stockholder and spouse divested
themselves of all of their stock in NEMSI. A portion of their stock (425 shares)
was purchased by the remaining stockholder and the remainder (425 shares) was
purchased by NEMSI with a note payable (see Note 6). In addition, NEMSI
purchased its headquarters from the former stockholder, which had previously
been leased by the stockholder to NEMSI. NEMSI also entered into consulting and
non-compete agreements with the former stockholders through 2004. As a result of
this change in ownership, $2,303,000 of goodwill was
F-64
<PAGE>
<PAGE>
NEW ENGLAND MECHANICAL SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
recorded and is being amortized over 40 years. Remaining commitments under the
consulting and non-compete agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998.............................................................. $ 192
1999.............................................................. 192
2000.............................................................. 192
2001.............................................................. 192
2002 and thereafter............................................... 1,072
------
Total....................................................... $1,840
------
------
</TABLE>
NOTE 11 -- EMPLOYEE BENEFIT PLAN
NEMSI maintains a profit sharing plan covering all of its employees in
which employees may elect voluntary contributions on a pretax and/or after-tax
basis. Employer contributions are determined annually at the discretion of the
board of directors. Employer contributions totaled approximately $213,000 and
$250,000 for the years ended December 31, 1997 and 1996.
NOTE 12 -- FINANCIAL INSTRUMENTS
NEMSI's financial instruments consist of cash and cash equivalents, a line
of credit, notes payable and debt. The Company believes that the carrying value
of these instruments on the accompanying balance sheet approximates their fair
value due to their nature.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
LITIGATION
NEMSI is involved in legal actions arising in the ordinary course of
business. Management does not believe the outcome of such legal actions will
have a material adverse effect on NEMSI's financial position or results of
operations.
INSURANCE
NEMSI carries a broad range of insurance coverage, including business auto
liability, general liability and an umbrella policy. NEMSI has not incurred
significant claims or losses on any of these insurance policies.
NEMSI is self-insured for medical claims up to $75,000 per year per covered
individual. Claims in excess of these amounts are covered by a stop-loss policy.
NEMSI is also protected by an aggregate stop loss policy which caps annual claim
exposure at 125.0% of the estimated amount. The aggregate stop loss amount is
$775,000 for fiscal 1997.
NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED)
NEMSI and its stockholders have entered into a definitive agreement with
Enfinity pursuant to which NEMSI will merge with a wholly owned subsidiary of
Enfinity. All outstanding shares of NEMSI will be exchanged for cash and common
stock of Enfinity concurrently with the consummation of the initial public
offering of the common stock of Enfinity.
F-65
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
LEE COMPANY
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Lee Company ('Lee') at December 31,
1996 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
These financial statements are the responsibility of Lee's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Nashville, Tennessee
April 3, 1998
F-66
<PAGE>
<PAGE>
LEE COMPANY
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 39 $ 74
Accounts receivable:
Trade accounts receivable, net of allowance of $200 in 1996 and 1997............... 3,602 6,628
Retainage.......................................................................... 771 1,140
Officer and employee accounts receivable........................................... 179 134
Current portion of long-term note receivable from officer.......................... 100 100
Other current receivables.......................................................... -- 177
Costs and estimated earnings in excess of billings on uncompleted contracts............. 1,024 1,281
Inventories............................................................................. 101 109
Prepaid expenses and other current assets............................................... 85 100
Deferred income taxes................................................................... 430 523
Income taxes refundable................................................................. 69 --
------ -------
Total current assets.......................................................... 6,400 10,266
Property and equipment, net.................................................................. 1,647 3,597
Other assets................................................................................. 653 719
------ -------
Total assets.................................................................. $8,700 $14,582
------ -------
------ -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.......................................................................... $ -- $ 1,197
Current portion of obligations under capital lease...................................... 213 27
Current portion of long-term debt....................................................... 100 100
Accounts payable........................................................................ 1,425 2,189
Accrued expenses........................................................................ 1,221 1,611
Billings in excess of costs and estimated earnings on uncompleted contracts............. 1,152 1,931
Unearned revenue........................................................................ 313 388
Income taxes payable.................................................................... 26 120
------ -------
Total current liabilities..................................................... 4,450 7,563
Obligations under capital lease, net of current portion...................................... 997 2,667
Long-term debt, net of current portion....................................................... 175 75
------ -------
Total liabilities............................................................. 5,622 10,305
------ -------
Commitments and contingencies (Notes 7 and 12)
Stockholders' equity:
Common stock, no par value; 500,000 shares authorized; 500,000 and 383,333 shares issued
and outstanding at December 31, 1996 and 1997, respectively............................ 50 38
Additional paid-in capital.............................................................. 50 38
Net unrealized gain on securities available for sale.................................... -- 134
Retained earnings....................................................................... 3,945 4,067
Less -- Treasury stock.................................................................. (967) --
------ -------
Total stockholders' equity.................................................... 3,078 4,277
------ -------
Total liabilities and stockholders' equity.................................... $8,700 $14,582
------ -------
------ -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-67
<PAGE>
<PAGE>
LEE COMPANY
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Revenues.................................................................................... $34,639 $39,681
Cost of revenues............................................................................ 26,541 30,316
------- -------
Gross profit........................................................................... 8,098 9,365
Selling, general and administrative expenses................................................ 6,663 7,325
------- -------
Income from operations................................................................. 1,435 2,040
Other (income) expense:
Interest expense....................................................................... 406 521
Interest income........................................................................ (75) (44)
Gain on sale of assets................................................................. -- (182)
Other.................................................................................. (5) (5)
------- -------
Income before provision for income taxes.................................................... 1,109 1,750
Provision for income taxes.................................................................. 442 685
------- -------
Net income.................................................................................. $ 667 $ 1,065
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE>
<PAGE>
LEE COMPANY
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NET
UNREALIZED GAIN
COMMON STOCK ADDITIONAL ON SECURITIES TOTAL
----------------- PAID-IN AVAILABLE RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL FOR SALE EARNINGS STOCK EQUITY
-------- ------ ---------- --------------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............... 500,000 $ 50 $ 50 $-- $3,278 $ (967) $ 2,411
Net income............................ -- -- -- -- 667 -- 667
-------- ------ ----- ------- -------- -------- -------------
Balance at December 31, 1996............... 500,000 50 50 -- 3,945 (967) 3,078
Net income............................ -- -- -- -- 1,065 -- 1,065
Retirement of treasury stock.......... (116,667) (12) (12) -- (943) 967 --
Net unrealized gain on securities
available for sale.................. -- -- -- 134 -- -- 134
-------- ------ ----- ------- -------- -------- -------------
Balance at December 31, 1997............... 383,333 $ 38 $ 38 $ 134 $4,067 $-- $ 4,277
-------- ------ ----- ------- -------- -------- -------------
-------- ------ ----- ------- -------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE>
<PAGE>
LEE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 667 $ 1,065
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation expense............................................................... 426 517
Net realized gain on sale of investments........................................... -- (176)
Net gain on disposal of property and equipment..................................... -- (77)
Deferred income taxes.............................................................. (116) (61)
Changes in assets and liabilities:
Trade and retainage accounts receivable....................................... 1,263 (3,395)
Officer and employee accounts and note receivable............................. 151 149
Other receivables............................................................. 5 (451)
Inventories................................................................... 30 (8)
Costs and estimated earnings in excess of billings on uncompleted contracts... (297) (257)
Prepaid expenses and other assets............................................. (26) (40)
Accounts payable.............................................................. (478) 764
Accrued expenses.............................................................. (248) 390
Unearned revenue.............................................................. 191 75
Billings in excess of costs and estimated earnings on uncompleted contracts... 42 779
Income taxes payable.......................................................... (546) 163
------- -------
Net cash provided by (used in) operating activities................................ 1,064 (563)
------- -------
Cash flows from investing activities:
Additions to property and equipment..................................................... (170) (3,453)
Equipment sale proceeds................................................................. -- 2,745
Proceeds on sale of investments......................................................... -- 422
Purchases of investments................................................................ (25) (25)
Investment principal distributions...................................................... 10 10
------- -------
Net cash used in investing activities......................................... (185) (301)
Cash flows from financing activities:
Net activity on line of credit.......................................................... (867) 1,197
Proceeds from long-term debt and sale of building....................................... -- 1,900
Repayments of long-term debt and capital leases......................................... (250) (2,198)
------- -------
Net cash (used in) provided by financing activities........................... (1,117) 899
------- -------
Net (decrease) increase in cash and cash equivalents......................................... (238) 35
Cash and cash equivalents, beginning of period............................................... 277 39
------- -------
Cash and cash equivalents, end of period..................................................... $ 39 $ 74
------- -------
------- -------
Supplemental disclosure of cash flow information:
Cash paid for interest.................................................................. $ 406 $ 519
Cash paid for income taxes.............................................................. $ 1,102 $ 675
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Lee Company ('Lee'), founded in 1944, specializes in the design,
engineering and installation of energy and indoor environmental systems.
Lee and its stockholders intend to enter into a definitive agreement with
Enfinity Corporation ('Enfinity'), pursuant to which all outstanding shares of
Lee's common stock will be exchanged for cash and shares of Enfinity common
stock concurrently with the consummation of an initial public offering (the
'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Lee considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of supplies, parts and equipment held for use in the
ordinary course of business and are stated at the lower of cost (average) or
market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is generally
computed using the double-declining balance accelerated method over the
estimated useful lives of purchased property and equipment. For vehicles under
capital lease, depreciation is calculated using straight-line depreciation over
the lease term. Leasehold improvements are capitalized and amortized over the
lesser of the life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
LONG-TERM INVESTMENTS
Long-term investments consist of investments in property, certain
privately-held entities with no readily available market prices and marketable
equity securities. The investments in property and privately-held entities are
accounted for under the cost method. The marketable equity securities are
classified as available for sale and recorded at market value of $179,000 at
December 31, 1997. Changes in unrealized gains and losses are not recognized in
earnings, but are reported as a separate component of stockholders' equity. No
such marketable equity securities were held at December 31, 1996.
TREASURY STOCK
Treasury stock is recorded at cost. In 1997, Lee retired its treasury
stock.
REVENUE RECOGNITION
Lee recognizes revenue when services are performed except when work is
being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
costs incurred as a percentage of the total estimated costs for each contract.
Contract costs include all direct material, subcontracts and labor costs and
those indirect costs related to contract performance such as indirect labor,
supplies, tools, repairs and depreciation costs.
F-71
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined. The reserve for estimated losses on
uncompleted contracts was $13,321 at December 31, 1997. No reserve was recorded
at December 31, 1996.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts are due upon completion of the contracts
and acceptance by the customer. Based on Lee's experience with similar contracts
in recent years, the retainage is expected to be collected in the upcoming
fiscal year.
WARRANTY COSTS
Lee warrants labor for the first year after installation on new air
conditioning and heating systems. A reserve for warranty costs is recorded as
part of the cost to complete each individual job.
INCOME TAXES
Deferred income taxes reflect the tax consequences of temporary differences
between the assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. The principal temporary
differences of Lee relate to allowance for doubtful accounts, unearned revenue,
vacation accrual, warranty reserve and differences arising from capital lease
accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Lee to concentrations of
credit risk consist principally of trade accounts receivable and retainage. Lee
follows the practice of filing statutory liens on construction projects where
collection problems are anticipated. The liens serve as collateral for trade
accounts receivable. Lee does not believe that it is subject to any unusual
credit risk beyond the normal credit risk inherent in its business.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, Lee adopted Statement of Financial Accounting
Standards No. 121, 'Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of.' Accordingly, in the event that facts and
circumstances indicate that property and equipment or other assets may be
impaired, an evaluation of recoverability would be performed. If an evaluation
is required, the estimated future undiscounted cash flows associated with the
asset are compared to the asset's carrying amount to determine if a write-down
to market value is necessary. Adoption of this standard did not have a material
effect on the financial position or results of operations of Lee.
F-72
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CASH FLOW INFORMATION
Individual amounts comprising non-cash transactions during 1996 and 1997
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1996 1997
----- -------
(IN THOUSANDS)
<S> <C> <C>
Capital lease on vehicle purchases................................................ $(426) $ (416)
Capital lease of building......................................................... -- (2,700)
Disposal of vehicles under capital lease obligation............................... -- 1,433
Receivable on sale of investments................................................. -- 70
Exchange of investments........................................................... -- 45
Net unrealized appreciation in equity securities.................................. -- 134
----- -------
Total non-cash transactions.................................................. $(426) $(1,434)
----- -------
----- -------
</TABLE>
NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts activity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Balance, beginning of year........................................................... $200 $200
Charges to costs and expenses........................................................ 35 15
Write-offs........................................................................... (35) (15)
---- ----
$200 $200
---- ----
---- ----
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------
IN YEARS 1996 1997
------------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................................... $ 10 $ 427
Building under capital lease....................................... 20 years -- 2,273
Leasehold improvements............................................. Lease term 323 468
Vehicles and equipment............................................. 5-10 years 811 843
Furniture, fixtures and office equipment........................... 5-10 years 652 539
Vehicles under capital lease....................................... Lease term 1,425 --
Construction-in-progress........................................... 30 --
------- ------
Total property and equipment.................................. 3,251 4,550
Less -- Accumulated depreciation and amortization.................. (1,604) (953)
------- ------
Property and equipment, net................................... $ 1,647 $3,597
------- ------
------- ------
</TABLE>
Depreciation expense was approximately $426,000 and $517,000 for the years
ended December 31, 1996 and 1997, respectively.
F-73
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress......................................... $ 10,932 $ 19,220
Estimated earnings, net of losses............................................... 3,631 4,792
-------- --------
14,563 24,012
Less -- Billings to date........................................................ (14,691) (24,662)
-------- --------
$ (128) $ (650)
-------- --------
-------- --------
Costs and estimated earnings in excess of billings on uncompleted contracts..... $ 1,024 $ 1,281
Billings in excess of costs and estimated earnings on uncompleted contracts..... (1,152) (1,931)
-------- --------
$ (128) $ (650)
-------- --------
-------- --------
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Vacation accrual..................................................................... $ 341 $ 443
Salaries, wages and commissions...................................................... 275 350
Warranty reserve..................................................................... 222 247
Bonuses.............................................................................. 160 179
401(k) matching contributions........................................................ 101 115
General insurance reserve............................................................ 31 114
Health insurance reserve............................................................. 41 100
Other taxes payable.................................................................. 31 42
Other................................................................................ 19 21
------ ------
Total accrued expenses.......................................................... $1,221 $1,611
------ ------
------ ------
</TABLE>
NOTE 6 -- LINE OF CREDIT AND LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
----- ------
(IN THOUSANDS)
<S> <C> <C>
Line of credit with First American National Bank, limit of $2,200,000 at December 31,
1997. Interest at variable rate (8.5% at December 31, 1997), expiring December 31,
1998, renewable annually. Secured by accounts receivable and inventory.............. $-- $1,197
----- ------
----- ------
Long-term debt:
Note payable to First American National Bank with offsetting note receivable from
an officer of Lee for purchase of stock from another stockholder. Interest at
variable rate (8.5% at December 31, 1997). Secured by property.................. $ 275 $ 175
Less -- Current portion............................................................... (100) (100)
----- ------
$ 175 $ 75
----- ------
----- ------
</TABLE>
Long-term debt of $75,000 at December 31, 1997 will mature in 1999.
F-74
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As a condition of the line of credit agreement, Lee is required to maintain
certain financial and operating measurements, including minimum working capital
and net worth levels. Lee was in compliance with all covenants for the years
ended December 31, 1996 and 1997.
NOTE 7 -- LEASE OBLIGATIONS
The majority of Lee's vehicles used in operations were leased through a
leasing company, wholly-owned by stockholders of the Company, with
non-cancelable lease terms of five years. The leases qualified as capital leases
in accordance with Statement of Financial Accounting Standards No. 13
'Accounting for Leases' (SFAS 13). Accordingly, both the equipment and
obligation are reflected in Lee's balance sheet at December 31, 1996. Interest
rates implicit in the leases ranged from 25.0% to 45.0%. The net book value of
leased vehicles included in property and equipment was approximately $1,043,000
at December 31, 1996.
During 1997, Lee canceled its vehicle capital leases with the partnership
of stockholders and entered into a new master lease agreement for the same
vehicles with a third party. Under the terms of the new leasing agreement, the
leases qualify as operating leases in accordance with SFAS 13. The minimum lease
term for these vehicles is one year. Rent expense was approximately $111,000 for
the year ended December 31, 1997.
Lee also leased its corporate headquarters and operating facility under an
operating lease with rent expense of approximately $184,000 for the years ended
December 31, 1996 and December 31, 1997, respectively. In October 1997, Lee
relocated its corporate headquarters and operations to a facility purchased
under capital lease, as described further in Note 9.
During 1997, Lee entered a master lease agreement for certain computer
equipment, software and furniture under operating lease with lease commitments
of three to four years for each item. The lease commitments are included in the
schedule below.
The following is a schedule of future minimum lease payments at December
31, 1997 under capital and operating leases:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL OPERATING
------------------------------ ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................................... $ 350 $ 750
1999..................................................................... 350 132
2000..................................................................... 350 128
2001..................................................................... 350 56
2002..................................................................... 350 --
Thereafter............................................................... 5,191 --
------- ---------
6,941 $ 1,066
---------
---------
Less -- Implied interest................................................. (4,247)
-------
Present value of net minimum lease payments.............................. 2,694
Less -- Current portion of capital lease obligation...................... (27)
-------
Long-term capital lease obligation....................................... $ 2,667
-------
-------
</TABLE>
F-75
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- INCOME TAXES
The provisions for income taxes for the periods are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal......................................................................... $392 $616
State........................................................................... 73 130
---- ----
465 746
Deferred:
Federal......................................................................... (19) (50)
State........................................................................... (4) (11)
---- ----
(23) (61)
---- ----
Total provision for income taxes........................................... $442 $685
---- ----
---- ----
</TABLE>
Reconciliations of statutory tax rates to effective tax rates are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Federal statutory rate............................................ $377 34.0% $595 34.0%
Increase in rate resulting from:
State taxes, net of federal benefit............................... 46 4.1 79 4.5
Nondeductible expenses............................................ 19 1.7 11 0.6
---- ---- ---- ----
Effective rate............................................... $442 39.8% $685 39.1%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
F-76
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1996 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current:
Vacation accrual................................................................ $130 $168
Warranty reserve................................................................ 84 94
Allowance for doubtful accounts................................................. 76 76
Unearned revenue................................................................ 118 147
Health insurance reserve........................................................ 16 38
Charitable contributions carryover.............................................. 6 --
---- ----
Total current.............................................................. 430 523
---- ----
Long-term:
Capital leases.................................................................. 38 6
---- ----
Total long-term............................................................ 38 6
---- ----
Total deferred tax assets.................................................. $468 $529
---- ----
---- ----
</TABLE>
NOTE 9 -- RELATED-PARTY TRANSACTIONS
Lee leased its corporate and operating facilities through October 1997 from
a partnership which is wholly-owned by stockholders of Lee. The lease agreement
contained a commitment to lease through September 2000; however, based on Lee's
completion of construction of a new facility in October 1997, as discussed
further below, the partnership revised its commitment to require rental payments
only through December 31, 1997. Leasehold improvements of approximately
$194,000, net, have been depreciated fully through December 31, 1997.
In October 1997, Lee completed construction of a new corporate headquarters
and operations building which was then sold to a partnership, wholly-owned by
stockholders of Lee. Lee sold the facility to the partnership for $2,700,000
recognizing no gain or loss on the transaction. Additional capitalized costs of
construction of approximately $429,000 represent improvements in the original
building design. These costs are classified as leasehold improvements to be
depreciated over the lease term. The lease requires monthly payments of
approximately $29,000, increasing for inflation after five years, commencing
October 24, 1997 and continuing through October 24, 2017. The lease qualifies as
a capital lease. The partnership entered into third-party debt to finance its
purchase of the facility from Lee. Lee guaranteed the partnership's debt in
conjunction with this transaction.
Lee has a note receivable from its president to facilitate his purchase of
Lee common shares from another stockholder. Lee issued a note payable to First
American National Bank which provided the funds for this transaction, as
described in Note 6. The note receivable bears interest at the same variable
rate charged to Lee by the bank. The balance is being repaid based on the same
amortization as Lee's note payable from its president, with payments being
received from the president through payroll deduction. Both notes are scheduled
to be paid in full by October 1999.
Lee has receivables from several officers of Lee for payment of various
personal expenses. The outstanding balances bear interest at market rates.
NOTE 10 -- EMPLOYEE BENEFIT PLANS
Lee has a 401(k) savings plan that covers substantially all employees with
over one year of service. Lee matches employee contributions at a rate of 25.0%.
Total contributions by Lee under the plan were approximately $101,000 and
$115,000 for the years ended December 31, 1996 and 1997, respectively.
F-77
<PAGE>
<PAGE>
LEE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Lee provides health insurance for its employees and covered dependents
through a plan that is partially self-insured. Lee retains risk for losses up to
$20,000 per employee annually. Lee maintains third party insurance to cover
losses greater than $20,000 up to $1,000,000 per employee annually. Annual
losses in excess of $1,000,000 are retained by Lee. Lee has not incurred any
losses that approach the threshold of its coverage.
NOTE 11 -- FINANCIAL INSTRUMENTS
Lee's financial instruments consist of cash and cash equivalents, long-term
investments, accounts receivable and payable, accrued expenses, and debt. Except
for capital lease obligations, Lee believes the carrying values of these
instruments on the accompanying balance sheet approximate their fair value due
to their nature and the variable interest rates charged. Capital lease
obligations would total approximately $2,680,000 using current market rates.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
INSURANCE
Lee carries a broad range of insurance coverage, including business auto
liability, general liability and an umbrella policy. Lee has not incurred
significant claims or losses on any of these insurance policies.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
Lee and its stockholders have entered into a definitive agreement with
Enfinity pursuant to which Lee will merge with a wholly owned subsidiary of
Enfinity. All outstanding shares of Lee will be exchanged for cash and common
stock of Enfinity concurrently with the consummation of the initial public
offering of the common stock of Enfinity.
F-78
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
HILL YORK CORPORATION AND
HILL YORK SERVICE CORPORATION
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Hill York
Corporation and Hill York Service Corporation (collectively, 'Hill York') at
March 31, 1996 and 1997 and December 31, 1997 and the results of their
operations and their cash flows for the years ended March 31, 1996 and 1997 and
the nine months ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of Hill
York's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
March 14, 1998
F-79
<PAGE>
<PAGE>
HILL YORK CORPORATION
COMBINED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
---------------- DECEMBER 31,
1996 1997 1997
------ ------ ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 453 $ 409 $ 207
Accounts receivable:
Trade, (net of allowance for doubtful accounts of $60, $40 and
$40 at March 31, 1996, March 31, 1997 and December 31, 1997,
respectively)................................................. 4,624 3,308 5,393
Retainage....................................................... 1,392 1,859 2,494
Costs in estimated earnings in excess of billings on uncompleted
contracts.......................................................... 689 732 385
Inventories.......................................................... 132 186 164
Prepaid expenses and other current assets............................ 41 295 262
Deferred income taxes................................................ 18 -- 453
------ ------ ------------
Total current assets................................................. 7,349 6,789 9,358
Property and equipment, net............................................... 1,519 1,613 1,562
Due from related parties -- noncurrent.................................... 343 363 298
Deferred income taxes..................................................... 36 55 --
Other assets.............................................................. 144 94 175
------ ------ ------------
Total assets......................................................... $9,391 $8,914 $ 11,393
------ ------ ------------
------ ------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit........................................................... $ 100 $ 100
Current portion of long-term debt......................................... 50 $ 50 50
Current portion of capital lease obligations.............................. 95 122 90
Accounts payable.......................................................... 2,866 2,513 3,393
Accrued expenses.......................................................... 2,099 2,453 2,047
Billings in excess of costs and estimated earnings on uncompleted
contracts............................................................... 1,153 558 1,969
Unearned revenue.......................................................... 263 284 249
Due to related parties.................................................... 12 18 --
Income taxes payable...................................................... 13 32 482
Deferred income taxes..................................................... 2 28 --
------ ------ ------------
Total current liabilities............................................ 6,653 6,058 8,380
Obligations under capital lease, net of current portion........................ 154 186 143
Long-term debt, net of current portion......................................... 458 408 371
Deferred income tax............................................................ -- 6 10
------ ------ ------------
Total liabilities.................................................... 7,265 6,658 8,904
Commitments and contingencies
Stockholders' equity:
Common stock, $0 par value; 150,300 shares authorized; 79,460 shares
issued and outstanding.................................................. 869 869 869
Retained earnings......................................................... 1,257 1,387 1,620
------ ------ ------------
Total stockholders' equity........................................... 2,126 2,256 2,489
------ ------ ------------
Total liabilities and stockholders' equity........................... $9,391 $8,914 $ 11,393
------ ------ ------------
------ ------ ------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-80
<PAGE>
<PAGE>
HILL YORK CORPORATION
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------ ----------------------
1996 1997 1996 1997
------- ------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................................................... $28,667 $31,430 $23,123 $25,863
Cost of revenues................................................... 22,526 24,121 18,002 20,432
------- ------- ----------- -------
Gross profit.................................................. 6,141 7,309 5,121 5,431
Selling, general and administrative expenses....................... 5,758 6,992 4,985 5,082
------- ------- ----------- -------
Income from operations........................................ 383 317 136 349
Other (income) expense:
Interest expense.............................................. 85 69 52 58
Interest income............................................... (2) (3) (3) (5)
Other income, net............................................. (62) (74) (52) (50)
------- ------- ----------- -------
Income before provision for income taxes........................... 362 325 139 346
Provision for income taxes......................................... 98 115 58 113
------- ------- ----------- -------
Net income......................................................... $ 264 $ 210 $ 81 $ 233
------- ------- ----------- -------
------- ------- ----------- -------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-81
<PAGE>
<PAGE>
HILL YORK CORPORATION
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT EARNINGS STOCK EQUITY
------ ------ -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995................................... 79,460 $869 $1,053 $ $ 1,922
Net income........................................... 264 264
Dividends paid....................................... (60) (60)
------ ------ -------- -------- -------------
Balance, March 31, 1996................................... 79,460 869 1,257 -- 2,126
Net income........................................... 210 210
Dividends paid....................................... (80) (80)
------ ------ -------- -------- -------------
Balance, March 31, 1997................................... 79,460 869 1,387 -- 2,256
Net income........................................... 233 233
------ ------ -------- -------- -------------
Balance, December 31, 1997................................ 79,460 $869 $1,620 $-- $ 2,489
------ ------ -------- -------- -------------
------ ------ -------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-82
<PAGE>
<PAGE>
HILL YORK CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------ ----------------------
1996 1997 1996 1997
------- ------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 264 $ 210 $ 81 $ 233
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................ 226 247 178 203
Gain on sale of property and equipment................... (11) (4)
Changes in operating assets and liabilities:
Accounts receivable...................................... (1,620) 849 356 (2,720)
Inventories.............................................. (5) (54) (95) 22
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. (74) (43) 277 347
Prepaid expenses and other current assets................ 16 (254) (304) 33
Due from related parties................................. (145) (20) 90 65
Other long-term assets................................... (131) 50 (39) (81)
Accounts payable......................................... 1,007 (353) (803) 880
Accrued expenses......................................... 197 355 673 (406)
Unearned revenue......................................... 18 20 (10) (35)
Income taxes payable..................................... 18 19 478 450
Deferred income taxes, net............................... 59 31 (446) (422)
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................. 235 (595) (252) 1,411
------- ------- ----------- -------
Net cash provided by (used in) operating activities...... 65 451 180 (20)
------- ------- ----------- -------
Cash flows from investing activities:
Advances to related parties................................... 12 6 (12) (18)
Proceeds from sale of property and equipment.................. 12 4 3
Additions of property and equipment........................... (120) (188) (131) (113)
------- ------- ----------- -------
Net cash used in investing activities.................... (108) (170) (139) (128)
------- ------- ----------- -------
Cash flows from financing activities:
Net proceeds (repayments) on line of credit................... 100 (100) (100) 100
Repayments of long-term debt.................................. (50) (50) (38) (38)
Stockholder dividends......................................... (60) (80) (80)
Capital lease payments........................................ (88) (95) (63) (116)
------- ------- ----------- -------
Net cash used in financing activities.................... (98) (325) (281) (54)
------- ------- ----------- -------
Net decrease in cash and cash equivalents.......................... (141) (44) (240) (202)
Cash and cash equivalents, beginning of period..................... 594 453 453 409
------- ------- ----------- -------
Cash and cash equivalents, end of period........................... $ 453 $ 409 $ 213 $ 207
------- ------- ----------- -------
------- ------- ----------- -------
Supplemental disclosure of cash flow information:
Additions under capital lease................................. $ 95 $ 154 $ 90 $ 42
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-83
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Hill York Corporation specializes in the design, shop fabrication,
installation and service of energy and indoor environmental systems in high rise
luxury condominiums, hotels, universities and convention centers throughout
South Florida.
Hill York Service Corporation, a Florida corporation, is primarily a
subcontractor and derives substantially all revenue from the installation and
service of air conditioning systems in Broward County, Florida.
The consolidated group of Hill York Corporation and Hill York Service
Corporation ('Hill York'), and its stockholders intend to enter into a
definitive agreement with Enfinity Corporation ('Enfinity'), pursuant to which
all outstanding shares of Hill York's common stock will be exchanged for cash
and shares of common stock of Enfinity concurrently with the consummation of the
initial public offering (the 'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of Hill
York Corporation and Hill York Service Corporation, which are affiliated through
common ownership and management. All intercompany transactions have been
eliminated in these financial statements.
CASH AND CASH EQUIVALENTS
Hill York considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of parts and supplies held for use in the ordinary
course of business and are stated at the lower of cost or market using the
first-in, first-out ('FIFO') method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
REVENUE RECOGNITION
Hill York recognizes revenue when services are performed except when work
is being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined.
F-84
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on Hill York's experience with
similar contracts in recent years, the retention balance will be collected in
the upcoming fiscal year.
WARRANTY COSTS
Hill York warrants labor for the first year after installation on new air
conditioning and heating systems. A reserve for warranty costs is recorded as
part of the cost to complete each individual job.
INCOME TAXES
Hill York Corporation has elected C Corporation status, as defined by the
Internal Revenue Service. As such, Hill York Corporation records income tax
expense using the liability method of accounting for deferred income taxes.
Under the liability method, deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between the
financial statement and income tax bases of Hill York Corporation's assets and
liabilities. An allowance is recorded when it is more likely than not that any
or all of a deferred tax asset will not be realized. The provision for income
taxes includes taxes currently payable plus the net change during the year in
deferred tax assets and liabilities recorded by Hill York Corporation.
Hill York Service Corporation has elected S Corporation status as defined
by the Internal Revenue Code, whereby Hill York Service Corporation is not
subject to taxation for federal purposes. Under S Corporation status, the
stockholders report their share of Hill York Service Corporation's taxable
earnings or losses in their personal tax returns. Hill York Service Corporation
will terminate its S Corporation status concurrently with the effective date of
this Offering. Included in current assets are deposits to prepay certain of the
stockholders' federal income taxes.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FISCAL YEAR END
Effective December 31, 1997, Hill York changed its fiscal year end from
March 31 to December 31.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the nine month period ended December
31, 1996 has been prepared from the unaudited financial records of Hill York and
in the opinion of management, reflects all adjustments, consisting only of
normal recurring items, necessary for a fair presentation of the financial
position and results of operations and of cash flows for the interim period.
F-85
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED MARCH 31,
USEFUL LIVES ------------------ DECEMBER 31,
IN YEARS 1996 1997 1997
------------ ------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Land................................................. $ 438 $ 438 $ 438
Building............................................. 31 years 406 406 423
Autos and trucks..................................... 5 years 1,148 1,269 1,276
Furniture and fixtures............................... 5 years 506 579 595
Machinery and equipment.............................. 7 years 247 282 329
Leasehold improvements............................... 10 years 252 258 265
Computers............................................ 5 years 63 115
------- ------- ------------
2,997 3,295 3,441
Less -- Accumulated depreciation..................... (1,478) (1,682) (1,879)
------- ------- ------------
Property and equipment, net.......................... $ 1,519 $ 1,613 $ 1,562
------- ------- ------------
------- ------- ------------
</TABLE>
Depreciation expense was approximately $226,000 and $247,000 for the years
ended March 31, 1996 and 1997, respectively, and approximately $203,000 for the
nine months ended December 31, 1997.
NOTE 4 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Activity in Hill York's allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
MARCH 31,
------------- DECEMBER 31,
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year............................................. $58 $ 60 $ 40
Additions to costs and expenses.......................................... 2
Deductions for uncollectible receivables written off and recoveries...... (20)
---- ---- ---
Balance at end of year.............................................. $60 $ 40 $ 40
---- ---- ---
---- ---- ---
</TABLE>
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs incurred on contracts in progress............................ $12,086 $19,808 $ 31,303
Estimated earnings, net of losses.................................. 2,524 4,087 5,557
------- ------- ------------
14,610 23,895 36,860
Less -- Billings to date........................................... 15,074 23,721 38,444
------- ------- ------------
$ (464) $ 174 $ (1,584)
------- ------- ------------
------- ------- ------------
Costs and estimated earnings in excess of billings on uncompleted
contracts........................................................ $ 689 $ 732 $ 385
Billings in excess of costs and estimated earnings on uncompleted
contracts........................................................ (1,153) (558) (1,969)
------- ------- ------------
$ (464) $ 174 $ (1,584)
------- ------- ------------
------- ------- ------------
</TABLE>
F-86
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LONG-TERM DEBT
A description of certain terms of the loan agreements follows:
<TABLE>
<CAPTION>
MARCH 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage note payable, secured by land and building payable in monthly
installments of $4,167 plus interest through May 2006. The note bears
interest at prime plus 0.75% (9.25% as of December 31, 1997) and is
collateralized by land and building with a net book value of
$753,000............................................................... $508 $458 $421
Less -- Current portion.................................................. (50) (50) (50)
---- ---- ------
$458 $408 $371
---- ---- ------
---- ---- ------
</TABLE>
Long-term debt consists of a mortgage note payable with a balance of
approximately $508,000, $458,000 and $421,000 at March 31, 1996 and 1997 and
December 31, 1997, respectively. This balance includes approximately $50,000 of
current portion of long-term debt for March 31, 1996 and 1997 and December 31,
1997. The interest rate is at 0.75% over the bank's prime rate (8.50% as of
December 31, 1997) due in monthly installments of $4,167 plus interest through
May 2006 collateralized by land and building with a book value of approximately
$753,000.
Hill York has three lines of credit with two different banks. The first
line is for $1,000,000, expires August 1, 1998 and bears interest at 1% above
the prime lending rate. The next line is for $500,000, bears interest at 0.5%
above the prime rate and expires June 18, 1998. The third line of credit expires
December 12, 1997, is for the amount $150,000 and bears interest at 0.75% above
prime rate. All three lines of credit are guaranteed by several stockholders.
Aggregate maturities required on long-term debt as of December 31, 1997 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998..................................................................... $ 50
1999..................................................................... 50
2000..................................................................... 50
2001..................................................................... 50
2002..................................................................... 50
Thereafter............................................................... 171
----
Total............................................................. $421
----
----
</TABLE>
NOTE 6 -- CAPITAL LEASE COMMITMENTS
Hill York leases vehicles and equipment under leases accounted for as
capital leases.
Property and equipment as of March 31, 1996 and 1997 and December 31, 1997
includes the following leased vehicles and equipment under capital leases:
<TABLE>
<CAPTION>
MARCH 31,
-------------- DECEMBER 31,
1996 1997 1997
----- ----- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Vehicles and equipment................................................. $ 400 $ 467 $ 507
Less -- Accumulated amortization....................................... (244) (340) (249)
----- ----- ------
Leased vehicles and equipment, net..................................... $ 156 $ 127 $ 258
----- ----- ------
----- ----- ------
</TABLE>
F-87
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of the future minimum lease payments under
capital leases, together with the present value of minimum lease payments as of
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998..................................................................... $140
1999..................................................................... 93
2000..................................................................... 49
2001 and thereafter...................................................... 11
----
Total minimum lease payments...................................... 293
Less -- Amount representing interest..................................... 60
----
Present value of minimum lease payments.................................. $233
----
----
</TABLE>
NOTE 7 -- OPERATING LEASE COMMITMENTS
Hill York leases vehicles and equipment under operating leases. Hill York
also leases office and warehouse space from a related party (see note 8). Total
lease expense for the years ended March 31, 1996 and 1997 and for the nine
months ended December 31, 1997 was approximately $149,000, $164,000, and
$171,000, respectively.
The minimum rental commitments as of December 31, 1997 for all
noncancelable operating leases with initial or remaining terms in excess of one
year are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998..................................................................... $184
1999..................................................................... 154
2000..................................................................... 124
2001..................................................................... 79
Thereafter............................................................... 48
----
Total minimum payments required................................... $589
----
----
</TABLE>
NOTE 8 -- RELATED-PARTY TRANSACTIONS
Hill York engages in various transactions with companies which have
officers and stockholders in common with Hill York. Significant transactions,
between Hill York entities, and balances due to or from the related parties are
summarized below:
LEASE TRANSACTIONS
Hill York leases office and warehouse space from 3921 Associates (a
partnership). The lease is for a period of five years, which expires on
September 30, 2002, and requires monthly payments of approximately $5,000.
Minimum rental commitments remaining for this lease amount to approximately
$302,000 as of December 31, 1997.
SERVICE CONTRACTS
Hill York engages Hill York Sales & Service Corporation in Dade County to
perform service and warranty work for systems installed by Hill York. During the
years ended March 31, 1996 and 1997 and for the nine months ended December 31,
1997, total fees of approximately $34,000, $47,000, and $53,000, respectively,
were paid to this company for service and warranty work.
F-88
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance premiums paid by Hill York on behalf of several related companies
are reimbursed periodically.
RELATED PARTY BALANCES
Related party balances, which are non interest-bearing, consist of the
following as of March 31, 1996 and 1997 and December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------ ------------
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Due from related parties:
Hill York Limited................................................... $338 $300 $286
Hill York Sales and Service Corporation............................. 5 4 5
Couse Air Conditioning Corporation.................................. 59 2
3927 Associates..................................................... 2
3921 Associates..................................................... 3
---- ---- ------
Total.......................................................... $343 $363 $298
---- ---- ------
---- ---- ------
Due to related parties:
Hill York Sales and Service Corporation............................. $ 12 $ 18 $--
---- ---- ------
---- ---- ------
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLANS
PROFIT-SHARING PLAN
Hill York participates with affiliated companies in an employee
profit-sharing plan covering substantially all of its employees that are not
under collective bargaining agreements. The amount of the annual contribution is
at the discretion of the Board of Directors. There were contributions to the
plan of approximately $140,000, $145,000 and $90,000 for the years ended March
31, 1996 and 1997 and December 31, 1997, respectively.
401(K) PLAN
Hill York's 401(k) plan covers substantially all of the Company's employees
that are not under collective bargaining agreements. Hill York's contribution is
based on a 50% and 25% match of the first 6% of the employee's contributions for
the years ended March 31, 1996 and 1997 and for the nine months ended December
31, 1997, respectively. Amounts charged to expense amounted to approximately
$32,000, $94,000 and $41,000 for the years ended March 31, 1996 and 1997 and for
the nine months ended December 31, 1997, respectively.
NOTE 10 -- FINANCIAL INSTRUMENTS
Hill York's financial instruments consist of cash and cash equivalents, a
line of credit, notes payable and debt. Hill York believes that the carrying
value of these instruments on the accompanying balance sheet approximates their
fair value.
F-89
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- INCOME TAXES
Deferred tax assets and liabilities consist of the following as of March
31, 1996 and 1997 and December 31, 1997:
<TABLE>
<CAPTION>
MARCH 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Accrued expenses..................................................... $ 95 $ 76 $453
Deferred tax liabilities:
Contracts in progress................................................ (41) (49)
Property and equipment............................................... (2) (6) (10)
---- ---- ------
(43) (55) (10)
---- ---- ------
Net deferred tax asset (liability)........................................ $ 52 $ 21 $443
---- ---- ------
---- ---- ------
</TABLE>
The deferred tax amounts mentioned above have been classified on the
accompanying balance sheets as of March 31, 1996 and 1997 and December 31, 1997
as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets (liabilities).............................................. $16 $(28) $453
Noncurrent assets (liabilities)........................................... 36 49 (10)
---- ---- ------
$52 $ 21 $443
---- ---- ------
---- ---- ------
</TABLE>
The difference between the federal income tax computed by the statutory
federal income tax rate and Hill York's actual income tax expense, as reflected
in the financial statements, is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
MARCH 31, ENDED
------------ DECEMBER 31,
1996 1997 1997
---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax at statutory federal income tax rate........................... $84 $105 $102
Increase (decrease) attributable to:
Benefit of income taxed at lower rates............................... (4) (2)
State income taxes, net of federal tax benefit....................... 9 11 10
Other................................................................ 9 1 1
---- ---- ------
Total........................................................... $98 $115 $113
---- ---- ------
---- ---- ------
</TABLE>
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
GUARANTEES
Hill York, along with two affiliated companies and certain stockholders,
has entered into an agreement of indemnity providing cross indemnity on any
surety bonds or guarantees issued by an insurance company on behalf of Hill York
or the affiliates.
LITIGATION
Hill York is subject to various claims and legal proceedings covering a
range of matters that arise in the ordinary course of its business activities.
Management believes that any liability that may ultimately result from the
resolution of these matters will not have a material adverse effect on Hill
York's financial position or results of operations.
F-90
<PAGE>
<PAGE>
HILL YORK CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
Hill York along with other related parties which include Hill York Sales
and Service Corporation and Couse Air Conditioning Corporation have a
self-insured workers' compensation plan. During the year, Hill York along with
the other related parties also entered into a self-insured property, auto and
general liability plan. The group paid a minimum annual premium of approximately
$163,000, $199,000 and $208,000 for the years ended March 31, 1996 and 1997 and
for the nine months ended December 31, 1997, respectively. The group also has
specific stop-loss coverage in effect at $100,000 per occurrence with a maximum
overall liability of $400,000 per year. Hill York's portion of the annual
premium paid was approximately $135,000, $161,000 and $170,000 for the years
ended March 31, 1996 and 1997 and for the nine months ended December 31, 1997,
respectively. Claims are accrued as incurred. Hill York's accrual for claims was
approximately $140,000, $252,000 and $286,000 for the years ended March 31, 1996
and 1997 and for the nine months ended December 31, 1997, respectively. Claims
paid for the group were approximately $161,000, $149,000 and $336,000 for the
years ended March 31, 1996 and 1997 and for the nine months ended December 31,
1997, of which approximately $134,000, $120,000 and $276,000 was allocated to
Hill York, respectively.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
Hill York and its stockholders have entered into a definitive agreement
with Enfinity pursuant to which Hill York will merge with a wholly owned
subsidiary of Enfinity. All outstanding shares of Hill York will be exchanged
for cash and common stock of Enfinity concurrently with the consummation of the
initial public offering of the common stock of Enfinity.
F-91
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
MECHANICAL SERVICES OF ORLANDO, INC.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Mechanical Services of Orlando,
Inc. ('Mechanical Services') at December 31, 1997, and the results of its
operations and its cash flows for year then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Mechanical Services' management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
April 3, 1998
F-92
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 34
Accounts receivable:
Trade................................................................................ 4,773
Retainage............................................................................ 725
Other receivables.................................................................... 58
Costs and estimated earnings in excess of billings on uncompleted contracts............... 279
Inventories............................................................................... 121
Prepaid expenses and other current assets................................................. 51
Deferred income taxes..................................................................... 7
-------
Total current assets............................................................ 6,048
Property and equipment, net.................................................................... 603
Investments.................................................................................... 143
-------
Total assets.................................................................... $6,794
-------
-------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................................................ $ 54
Accounts payable and accrued expenses..................................................... 1,903
Billings in excess of costs and estimated earnings on uncompleted contracts............... 522
Income taxes payable...................................................................... 246
-------
Total current liabilities....................................................... 2,725
Deferred income taxes.......................................................................... 375
-------
Total liabilities............................................................... 3,100
-------
Commitments and contingencies
Stockholders' equity:
Common stock, $10 par value; 1,000 shares authorized, 35 shares issued and outstanding.... --
Additional paid-in capital................................................................ 7
Retained earnings.............................................................................. 3,687
-------
Total stockholders' equity...................................................... 3,694
-------
Total liabilities and stockholders' equity...................................... $6,794
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-93
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C>
Revenues.......................................................................................... $ 28,279
Cost of revenues.................................................................................. 24,511
--------------
Gross profit................................................................................. 3,768
Selling, general and administrative expenses...................................................... 2,530
--------------
Income from operations....................................................................... 1,238
Other (income) expense:
Interest expense............................................................................. 10
Interest income.............................................................................. (11)
Gain on lease replacements/disposal of equipment............................................. (119)
--------------
Income before provision for income taxes.......................................................... 1,358
Provision for income taxes........................................................................ 543
--------------
Net income........................................................................................ $ 815
--------------
--------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-94
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............................. 35 -- $ 7 $2,872 $ 2,879
Net income......................................... -- -- -- 815 815
---- ------ ------- -------- -------------
Balance, December 31, 1997.............................. 35 -- $ 7 $3,687 $ 3,694
---- ------ ------- -------- -------------
---- ------ ------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-95
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
--------------
<S> <C>
Cash flows from operating activities:
Net income................................................................................... $ 815
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation expense.................................................................... 109
Gain on disposition of equipment........................................................ (119)
Deferred income taxes................................................................... 63
Changes in operating assets and liabilities:
Accounts receivable................................................................ (920)
Inventories........................................................................ (1)
Costs and estimated earnings in excess of billings on uncompleted contracts........ 78
Prepaid expenses and other current assets.......................................... 10
Accounts payable and accrued expenses.............................................. 153
Income taxes payable............................................................... (18)
Billings in excess of costs and estimated earnings on uncompleted contracts........ (775)
------
Net cash used in operating activities......................................... (605)
------
Cash flows from investing activities:
Additions of property and equipment.......................................................... (237)
Distributions from partnership investments................................................... 2
------
Net cash used in investing activities......................................... (235)
------
Cash flows from financing activities:
Borrowings under revolving credit agreement.................................................. 54
Payments of capital lease obligations........................................................ (12)
------
Net cash provided by financing activities..................................... 42
------
Net decrease in cash and cash equivalents......................................................... (798)
Cash and cash equivalents, beginning of period.................................................... 832
------
Cash and cash equivalents, end of period.......................................................... $ 34
------
------
Supplemental disclosure of cash flow information:
Cash paid for interest....................................................................... $ 10
Cash paid for income taxes................................................................... $ 505
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-96
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Mechanical Services of Orlando, Inc. ('Mechanical Services'), founded in
1974, focuses on design and build projects and provides operation and
maintenance services, primarily in the State of Florida.
Mechanical Services and its stockholders intend to enter into a definitive
agreement with Enfinity Corporation ('Enfinity'), pursuant to which all
outstanding shares of Mechanical Services' common stock will be exchanged for
cash and shares of Enfinity common stock concurrently with the consummation of
the initial public offering (the 'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Mechanical Services considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 1997, various capital leases for
vehicles and office equipment were replaced by operating leases. The net book
value of the assets held under capital leases at the date of replacement was
approximately $233,000, and the balance of the related capital lease obligations
was approximately $352,000, resulting in a gain of approximately $119,000.
INVENTORIES
Inventories consist of air conditioning and heating equipment, parts and
supplies held for use in the ordinary course of business and are stated at the
lower of cost or market using the first-in, first-out ('FIFO') method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using straight-line and accelerated methods over the estimated useful lives of
the assets. Leasehold improvements are capitalized and amortized over the lesser
of the life of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
INVESTMENTS
Mechanical Services maintains investments in certain real estate limited
partnerships and accounts for these investments on the cost basis. Income
recognized by Mechanical Services is limited to distributions received from the
partnerships.
REVENUE RECOGNITION
Mechanical Services recognizes revenues when services are performed except
when work is being performed under a construction contract. Revenues from
construction contracts are recognized on the percentage-of-completion method
measured by the percentage of costs incurred to total estimated costs for each
contract. Contract costs include all direct material, subcontracts and labor
costs and those indirect costs related to contract performance such as indirect
labor, supplies, tools, repairs and
F-97
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
depreciation costs. Provisions for the total estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, estimated profitability and final contract
settlements may result in revisions to costs and income and their effects are
recognized in the period in which the revisions are determined.
The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts are due upon completion of the contracts
and acceptance by the customer. Based on Mechanical Services' experience with
similar contracts in recent years, the retention balance is expected to be
collected in the upcoming fiscal year.
WARRANTY COSTS
Mechanical Services generally warrants materials and labor for the first
year after installation on new air conditioning and heating systems. Mechanical
Services maintains a reserve for warranty costs based on historical warranty
charges.
INCOME TAXES
Income taxes include the recognition of deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Mechanical Services to
concentrations of credit risk consist principally of trade accounts receivable.
Mechanical Services follows the practice of filing statutory liens on
construction projects where collections problems are anticipated. The liens
serve as collateral for trade receivables. Mechanical Services does not believe
that it is subject to any unusual credit risk beyond the normal credit risk
attendant in its business.
FISCAL YEAR END
Effective December 31, 1997, Mechanical Services changed its fiscal year
end from March 31 to December 31.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, Mechanical Services adopted Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.' Accordingly, in
the event that facts and circumstances indicate that property and equipment or
other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of Mechanical Services.
F-98
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES DECEMBER 31,
IN YEARS 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Transportation equipment............................................................ 3-5 years $ 182
Machinery and equipment............................................................. 5-7 years 202
Leasehold improvements.............................................................. 7-39 years 389
Furniture, fixtures and office equipment............................................ 5-7 years 446
Less -- Accumulated depreciation and amortization................................... (616)
------
Property and equipment, net......................................................... $ 603
------
------
</TABLE>
Depreciation expense was approximately $109,000 for the year ended December
31, 1997.
NOTE 4 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Costs incurred on contracts in progress....................................... $ 13,683
Estimated earnings, net of losses............................................. 2,299
--------------
15,982
Less -- Billings to date...................................................... (16,225)
--------------
$ (243)
--------------
--------------
Costs an estimated earnings in excess of billings on uncompleted contracts.... $ 279
Billings in excess of costs and estimated earnings on uncompleted contracts... (522)
--------------
$ (243)
--------------
--------------
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Accounts payable, trade....................................................... $ 1,150
Accrued compensation and benefits............................................. 640
Other accrued expenses........................................................ 113
--------------
$ 1,903
--------------
--------------
</TABLE>
NOTE 5 -- REVOLVING LINE OF CREDIT
Mechanical Services has a $1,600,000 revolving line of credit with a bank.
The line of credit expires July 31, 1998 and bears interest at one-quarter
percent above the bank's prime lending rate (8.8% at December 31, 1997). The
line of credit is unsecured and is guaranteed by Mechanical Services'
stockholders. Borrowings are limited to 80.0% of accounts receivable less than
90 days outstanding. This line of credit agreement requires that Mechanical
Services maintain certain financial ratios. There are no commitment fees or
compensating balance arrangements under the agreement.
F-99
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INCOME TAXES
The provision for income taxes for the year ended December 31, 1997
consists of the following (in thousands):
<TABLE>
<S> <C>
Current:
Federal.......................................................................... $411
State............................................................................ 69
----
480
Deferred:
Federal.......................................................................... 54
State............................................................................ 9
----
63
----
Total provision for income taxes............................................ $543
----
----
</TABLE>
The following table shows the reconciliation between the statutory federal
income tax and the actual provision for income taxes for the year ended December
31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Provision -- federal statutory rate........................................... $475 35.0%
Increase resulting from:
State taxes, net of federal tax benefit.................................. 50 3.7
Effect of permanent differences.......................................... 18 1.3
---- ----
Provision for income taxes.......................................... $543 40.0%
---- ----
---- ----
</TABLE>
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Gross deferred tax assets:
Workers' compensation accruals........................................... $ 7
----
----
Gross deferred tax liabilities:
Investments in real estate limited partnerships.......................... $365
Depreciation............................................................. 10
----
Total deferred tax liabilities...................................... $375
----
----
</TABLE>
NOTE 7 -- EMPLOYEE BENEFIT PLAN
Mechanical Services has a defined contribution profit sharing plan. The
plan provides for Mechanical Services to match one-half of the first six percent
contributed by each employee. Mechanical Services may also make discretionary
contributions; however, Mechanical Services made no discretionary contributions
for the year ended December 31, 1997. Total contributions under the plan were
approximately $105,000 for the year ended December 31, 1997.
NOTE 8 -- FINANCIAL INSTRUMENTS
Mechanical Services' financial instruments consist of cash and cash
equivalents, trade receivables and a line of credit. Mechanical Services
believes that the carrying value of these instruments on the
F-100
<PAGE>
<PAGE>
MECHANICAL SERVICES OF ORLANDO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying balance sheet approximates their fair value due to the short-term
nature of these instruments.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
GUARANTEES
Mechanical Services owns a minority interest in seven real estate
partnerships. Mechanical Services has guaranteed debt of these partnerships
totaling approximately $479,000 as of December 31, 1997.
LEASES
Mechanical Services leases certain of its Orlando facilities from the
stockholders of Mechanical Services under an operating lease expiring in 2002.
The rent paid under this related-party lease was approximately $130,000 for the
year ended December 31, 1997.
During the year ended December 31, 1997, Mechanical Services replaced
various capital leases for office equipment and vehicles with operating leases,
resulting in a gain of approximately $119,000.
Mechanical Services leases various office equipment, vehicles and certain
facilities under operating leases expiring in 1998 through 2002. Future minimum
lease payments under these non-cancelable operating leases are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998.................................................................... $ 566
1999.................................................................... 470
2000.................................................................... 244
2001.................................................................... 135
2002.................................................................... 130
-------
Total............................................................ $ 1,545
-------
-------
</TABLE>
Cost of sales and operating expenses include rent on these leases of
approximately $480,000 for the year ended December 30, 1997.
INSURANCE
Mechanical Services is self-insured for medical claims up to approximately
$1,300 per year per covered individual. Additionally, Mechanical Services annual
workers' compensation insurance coverages are provided through contracts which
require Mechanical Services to pay incurred claims up to an annual maximum
amount of approximately $448,000. Claims in excess of this amounts are covered
by a stop-loss policy. Under the policy, Mechanical Services is required to
provide the insurer a $381,000 letter of credit as collateral for such claims.
Mechanical Services has recorded reserves for its portion of self-insured claims
based on estimated claims incurred through December 31, 1997.
NOTE 10 -- SUBSEQUENT EVENTS (UNAUDITED)
Mechanical Services and its stockholders have entered into a definitive
agreement with Enfinity pursuant to which Mechanical Services will merge with a
wholly owned subsidiary of Enfinity. All outstanding shares of Mechanical
Services will be exchanged for cash and common stock of Enfinity concurrently
with the consummation of the initial public offering of the common stock of
Enfinity.
F-101
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
AIRCOND CORPORATION
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Aircond Corporation ('Aircond') at
September 30, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Aircond's management; our responsibility is
to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Nashville, Tennessee
November 14, 1997
F-102
<PAGE>
<PAGE>
AIRCOND CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------ DECEMBER 31,
1996 1997 1997
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................... $ 2,297 $ 2,275 $ 2,610
Accounts receivable:
Trade, net of allowance of $75,000 in each year.................... 5,008 5,640 5,130
Costs and estimated earnings in excess of billings on uncompleted
contracts............................................................. 284 486 403
Inventories............................................................. 388 399 413
Due from related parties................................................ 71 49 53
Deferred income taxes................................................... 376 -- --
Prepaid expenses and other current assets............................... 21 305 297
Income taxes refundable................................................. 52 -- --
------- ------- ------------
Total current assets............................................... 8,497 9,154 8,906
Property and equipment, net.................................................. 2,497 2,363 4,761
Cash surrender value -- life insurance....................................... 734 785 785
Deferred income taxes........................................................ 118 -- --
Other assets................................................................. 60 60 200
------- ------- ------------
Total assets....................................................... $11,906 $12,362 $ 14,652
------- ------- ------------
------- ------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of obligations under capital lease...................... $ 609 $ 687 $ 791
Accounts payable........................................................ 704 1,116 1,258
Accrued expenses........................................................ 1,575 1,515 924
Billings in excess of costs and estimated earnings on uncompleted
contracts............................................................. 117 158 402
Unearned revenue........................................................ 539 586 586
------- ------- ------------
Total current liabilities.......................................... 3,544 4,062 3,961
Obligations under capital lease, net of current portion................. 1,260 995 3,299
Note payable to related party........................................... 1,217 1,217 1,217
Deferred compensation................................................... 165 148 148
------- ------- ------------
Total liabilities.................................................. 6,186 6,422 8,625
------- ------- ------------
Commitments and contingencies................................................ -- -- --
Stockholders' equity:
Common stock, $50 par value; 5,000 shares authorized, issued and
outstanding........................................................... 250 250 250
Retained earnings....................................................... 5,470 5,690 5,777
------- ------- ------------
Total stockholders' equity......................................... 5,720 5,940 6,027
------- ------- ------------
Total liabilities and stockholders' equity......................... $11,906 $12,362 $ 14,652
------- ------- ------------
------- ------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE>
<PAGE>
AIRCOND CORPORATION
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
----------------------------- ----------------------
1995 1996 1997 1996 1997
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................ $25,225 $26,830 $26,935 $ 5,598 $ 6,311
Cost of revenues........................................ 17,174 17,284 17,509 3,591 4,162
------- ------- ------- --------- ---------
Gross profit....................................... 8,051 9,546 9,426 2,007 2,149
Selling, general and administrative expenses............ 6,273 7,487 7,731 1,841 1,909
------- ------- ------- --------- ---------
Income from operations............................. 1,778 2,059 1,695 166 240
Other (income) expense:
Interest expense................................... 403 176 301 75 103
Interest income.................................... (41) (60) (97) (23) (20)
(Gain) loss on sale of equipment................... (80) 23 38 10 3
Other.............................................. (17) (16) (33) (9) (1)
------- ------- ------- --------- ---------
Income before provision for income taxes................ 1,513 1,936 1,486 113 155
Provision for income taxes.............................. 539 737 494 38 --
------- ------- ------- --------- ---------
Net income.............................................. $ 974 $ 1,199 $ 992 $ 75 $ 155
------- ------- ------- --------- ---------
------- ------- ------- --------- ---------
Unaudited pro forma information:
Pro forma net income before provision for income
taxes............................................ $ 1,486 $ 155
Provision for income taxes......................... 594 62
------- ---------
Pro forma income (see Note 2)........................... $ 892 $ 93
------- ---------
------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-104
<PAGE>
<PAGE>
AIRCOND CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------- PREFERRED RETAINED STOCKHOLDERS'
SHARES AMOUNT STOCK EARNINGS EQUITY
------ ------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1994.............................. 5,000 $250 $ 1,217 $3,368 $ 4,835
Dividends paid...................................... -- -- -- (41) (41)
Net income.......................................... -- -- -- 974 974
------ ------ --------- -------- -------------
Balance, September 30, 1995.............................. 5,000 250 1,217 4,301 5,768
Dividends paid...................................... -- -- -- (30) (30)
Redemption of preferred stock....................... -- -- (1,217) -- (1,217)
Net income.......................................... -- -- -- 1,199 1,199
------ ------ --------- -------- -------------
Balance, September 30, 1996.............................. 5,000 250 -- 5,470 5,720
Distributions to S Corporation stockholders......... -- -- -- (772) (772)
Net income.......................................... -- -- -- 992 992
------ ------ --------- -------- -------------
Balance, September 30, 1997.............................. 5,000 250 -- 5,690 5,940
Distributions to S Corporation stockholders
(unaudited)....................................... -- -- -- (68) (68)
Net income (unaudited).............................. -- -- -- 155 155
------ ------ --------- -------- -------------
Balance, December 31, 1997 (unaudited)................... 5,000 $250 $ -- $5,777 $ 6,027
------ ------ --------- -------- -------------
------ ------ --------- -------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-105
<PAGE>
<PAGE>
AIRCOND CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ----------------------
1995 1996 1997 1996 1997
------- ------ ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 974 $1,199 $ 992 $ 75 $ 155
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense....................................... 536 690 715 179 199
Loss (gain) on sale of property and equipment.............. (80) 23 38 10 3
Deferred income taxes...................................... (98) (40) 494 39 --
Changes in operating assets and liabilities:
Accounts receivable................................... (2,290) 1,106 (631) 743 510
Inventories........................................... (31) (43) (11) (8) (14)
Prepaids and other assets............................. (58) (11) (284) (390) (132)
Costs and estimated earnings in excess of billings on
uncompleted contracts............................... (12) 15 (202) (253) 83
Accounts payable...................................... 342 (361) 412 332 142
Accrued expenses...................................... 528 (20) (60) (371) (591)
Deferred compensation................................. (15) (17) (17) (4) --
Billings in excess of costs and estimated earnings on
uncompleted contracts............................... 110 (65) 41 128 244
Unearned revenue...................................... 46 101 47 12 --
Income taxes payable....................................... 88 (287) 52 52 --
------- ------ ------- --------- ---------
Net cash provided by operating activities........ 40 2,290 1,586 544 599
------- ------ ------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment............................. (102) (353) (245) (56) (57)
Proceeds from sale of property and equipment.................... 300 142 91 23 17
Repayments to (advances from) related parties................... (12) (2) 22 (2) (4)
Increase in cash surrender value of life insurance.............. (54) (83) (51) (13) --
------- ------ ------- --------- ---------
Net cash provided by (used in) investing
activities..................................... 132 (296) (183) (48) (44)
------- ------ ------- --------- ---------
Cash flows from financing activities:
Payments of long-term debt...................................... (469) (621) (653) (163) (152)
Dividends and distributions..................................... (41) (30) (772) (122) (68)
------- ------ ------- --------- ---------
Net cash used in financing activities............ (510) (651) (1,425) (285) (220)
------- ------ ------- --------- ---------
Net increase (decrease) in cash and cash equivalents................. (338) 1,343 (22) 211 335
Cash and cash equivalents, beginning of period....................... 1,292 954 2,297 2,297 2,275
------- ------ ------- --------- ---------
Cash and cash equivalents, end of period............................. $ 954 $2,297 $ 2,275 $ 2,508 $ 2,610
------- ------ ------- --------- ---------
------- ------ ------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest.......................................... $ 404 $ 176 $ 301 $ 75 $ 103
Cash paid for income taxes...................................... $ 548 $1,065 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
Aircond Corporation ('Aircond'), founded in 1937, focuses on the
maintenance, repair and replacement of commercial energy and indoor
environmental systems.
Aircond and its stockholders intend to enter into a definitive agreement
with Enfinity Corporation ('Enfinity'), pursuant to which all outstanding shares
of Aircond's common stock will be exchanged for cash and shares of Enfinity
common stock concurrent with the consummation of an initial public offering (the
'Offering') of the common stock of Enfinity.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Aircond considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories consist of supplies and parts held for use in the ordinary
course of business and are stated at the lower of specific cost or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, and depreciation is computed
using the straight-line method over the estimated useful lives of purchased
property and equipment and over the lease term for vehicles under capital lease.
Leasehold improvements are capitalized and amortized over the lesser of the life
of the lease or the estimated useful life of the asset.
Expenditures for repairs and maintenance are charged to expense when
incurred. Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated. Upon
retirement or disposition of property and equipment, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is recognized in the statement of operations.
CASH SURRENDER VALUE -- LIFE INSURANCE
Increases in cash surrender value of life insurance policies owned by
Aircond are recognized as a reduction of premiums expensed in each period.
REVENUE RECOGNITION
Aircond recognizes revenues when services are performed except when work is
being performed under a construction contract. Revenues from construction
contracts are recognized on the percentage-of-completion method measured by the
percentage of costs incurred to total estimated costs for each contract.
Provisions for the total estimated losses on uncompleted contracts are made in
the period in which such losses are determined. Changes in job performance, job
conditions, estimated profitability and final contract settlements may result in
revisions to costs and income and their effects are recognized in the period in
which the revisions are determined.
Unearned revenues represent amounts billed in advance of revenues
recognized on service contracts.
F-107
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
WARRANTY COSTS
Aircond warrants labor for the first year after installation on new air
conditioning and heating systems. A reserve for warranty costs is recorded as
part of the cost to complete each individual job.
INCOME TAXES
For the years ended September 30, 1995 and 1996, Aircond utilized the
method of accounting for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS 109'), which
requires deferred income taxes to reflect the tax consequences of temporary
differences between the assets and liabilities recognized for financial
reporting purposes and such amounts recognized for tax purposes. The principal
temporary differences of Aircond relate to depreciation, allowance for doubtful
accounts, service warranty reserve, vacation accrual, deferred compensation,
unearned revenues, and differences arising from capital lease accounting.
Effective, October 1, 1996, Aircond elected S Corporation status as defined
by the Internal Revenue Code, whereby Aircond is not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their
share of Aircond's taxable earnings or losses in their personal tax returns.
Included in current assets are deposits to prepay certain of the stockholders'
federal income taxes based on Aircond electing to use a fiscal year end.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with SFAS 109 as if Aircond had been
subject to federal and state income taxes for the entire periods presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
Effective January 1, 1996, Aircond adopted Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of.' Accordingly, in the event
that facts and circumstances indicate that property and equipment or other
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows
associated with the asset are compared to the asset's carrying amount to
determine if a write-down to market value is necessary. Adoption of this
standard did not have a material effect on the financial position or results of
operations of Aircond.
CASH FLOW INFORMATION
Non-cash transactions, excluded from the statements of cash flows,
consisted of equipment purchased through the use of capital lease obligations of
approximately $1,167,000, $733,000 and $486,000 for the years ended September
30, 1995, 1996 and 1997, respectively.
In addition, for the year ended September 30, 1996, Aircond redeemed all
outstanding shares of preferred stock by incurring long-term debt of
approximately $1,217,000.
F-108
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Aircond to concentrations of
credit risk consist principally of trade accounts receivable. Aircond follows
the practice of filing statutory liens on construction projects where
collections problems are anticipated. The liens serve as collateral for trade
receivables. Aircond does not believe that it is subject to any unusual credit
risk beyond the normal credit risk attendant in its business.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the three month periods ended
December 31, 1996 and 1997 has been prepared from the unaudited financial
records of Aircond and in the opinion of management reflects all adjustments,
consisting only of normal recurring items, necessary for a fair presentation of
the financial position and results of operations and of cash flows for the
interim periods.
NOTE 3 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts activity is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year......................................................... $60 $ 90 $75
Charges to costs and expenses...................................................... 30 -- --
Write-offs......................................................................... -- (15) --
---- ---- ----
$90 $ 75 $75
---- ---- ----
---- ---- ----
</TABLE>
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30,
USEFUL LIVES ------------------
IN YEARS 1996 1997
------------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Land............................................................... $ 52 $ 52
Building and improvements.......................................... 39 years 520 562
Vehicles and equipment............................................. 5-10 years 756 793
Furniture, fixtures and office equipment........................... 5-10 years 570 601
Vehicles under capital lease....................................... Lease term 2,670 2,729
Less -- Accumulated depreciation and amortization.................. (2,071) (2,374)
------- -------
Property and equipment, net................................... $ 2,497 $ 2,363
------- -------
------- -------
</TABLE>
Depreciation expense was approximately $536,000, $690,000 and $715,000 for
the years ended September 30, 1995, 1996 and 1997, respectively.
F-109
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Installation contracts in progress are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1996 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Costs incurred on contracts in progress............................................. $ 343 $ 486
Estimated earnings, net of losses................................................... 142 191
------- ------
485 677
Less -- Billings to date............................................................ (318) (349)
------- ------
$ 167 $ 328
------- ------
------- ------
Costs and estimated earnings in excess of billings on uncompleted contracts......... $ 284 $ 486
Billings in excess of costs and estimated earnings on uncompleted contracts......... (117) (158)
------- ------
$ 167 $ 328
------- ------
------- ------
</TABLE>
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------
1996 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Salaries, wages and commissions..................................................... $ 936 $ 663
Profit sharing contributions........................................................ 200 160
Other taxes payable................................................................. 38 76
Vacation accrual.................................................................... 314 321
Accrued distributions to stockholders............................................... -- 163
Other............................................................................... 42 95
------- ------
$ 1,530 $1,478
------- ------
------- ------
</TABLE>
NOTE 6 -- LONG-TERM DEBT
On September 26, 1996, Aircond incurred long-term debt in the amount of
approximately $1,217,000 in exchange for the outstanding preferred stock in
Aircond. The note carries an interest rate of 9.0% with interest due monthly
through August 2011 and principal of approximately $1,217,000 due on September
1, 2011. The note is collateralized by the personal guarantee of the majority
stockholder.
Aircond has available an unsecured bank line of credit dated March 1995
which allows Aircond to borrow up to $1,000,000 at an interest rate of one
quarter of one percent below the prime rate. Aircond has not borrowed funds
under this agreement for the years ended September 30, 1996 and 1997.
NOTE 7 -- LEASE OBLIGATIONS
The majority of Aircond's vehicles used in operations are leased through a
leasing company with non-cancelable terms of three to four years. The leases
contain options permitting the purchase of the vehicles at any time in
accordance with a schedule of values which decline at an even rate each month
during the initial term of the lease, as well as for subsequent periods if the
vehicles are held beyond the initial term. The leases qualify as capital leases
in accordance with Statement of Financial Accounting Standards No. 13
'Accounting for Leases' ('SFAS 13'). Accordingly, both the equipment and
obligation are reflected in Aircond's balance sheet. Interest rates implicit in
the leases range from 7.5% to 13.0%.
F-110
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net book value of leased vehicles included in property and equipment at
September 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Cost.................................................................... $2,670 $ 2,729
Less -- Accumulated depreciation........................................ (959) (1,173)
------ -------
Net book value.......................................................... $1,711 $ 1,556
------ -------
------ -------
</TABLE>
Aircond also leases various buildings and equipment under operating leases
with rent expense amounting to approximately $91,000, $88,000 and $106,000 for
the years ended September 30, 1995, 1996 and 1997, respectively.
The following is a schedule of future minimum lease payments at September
30, 1997 under capital and operating leases:
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30, CAPITAL OPERATING
--------------- ------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 826 $ 74
1999........................................................ 682 73
2000........................................................ 287 73
2001........................................................ 139 73
2002........................................................ -- 33
------- ---------
1,934 $ 326
---------
---------
Less -- Implied interest.................................... (252)
-------
Present value of net minimum lease payments................. 1,682
Less -- Current portion..................................... (687)
-------
Long-term amount............................................ $ 995
-------
-------
</TABLE>
In October 1997, Aircond entered into a lease agreement with a partnership
of stockholders of Aircond for a new office building to serve as Aircond's
corporate headquarters. The lease requires monthly payments of $25,000
commencing October 1, 1997 and continuing through October 1, 2012. The building
under lease is still under construction and is expected to be finished in
February of 1998. The lease qualifies as a capital lease under SFAS 13 and will
be accounted for as such upon commencement of the lease.
NOTE 8 -- INCOME TAXES
Effective October 1, 1996, Aircond elected S Corporation status under
federal income tax laws which provide that the stockholders are taxed directly
on Aircond taxable income. As a result, the prior years' tax effect of
cumulative temporary differences of approximately $494,000 was reversed during
fiscal 1997.
F-111
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes for the years ended September 30, 1995 and
1996 are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal....................................................... $548 $669
State......................................................... 89 109
---- ----
637 778
---- ----
Deferred:
Federal....................................................... (84) (35)
State......................................................... (14) (6)
---- ----
(98) (41)
---- ----
Total provision for income taxes......................... $539 $737
---- ----
---- ----
</TABLE>
A reconciliation of statutory tax rates to effective tax rate for the years
ended September 30, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1995 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. federal statutory rate............................................ $514 34.0% $658 34.0%
Increase (decrease) in rate resulting from:
State taxes, net of federal benefit............................... 50 3.3 68 3.5
Nondeductible expenses, increase in cash surrender value of life
insurance and other............................................. (25) (1.7) 11 0.6
---- ---- ---- ----
Effective rate......................................................... $539 35.6% $737 38.1%
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
The components of deferred tax assets and liabilities as of September 30,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1996
----
<S> <C>
Current:
Allowance for bad debts.......................................................... $ 29
Unearned revenue................................................................. 213
Vacation accrual................................................................. 124
Inventory capitalization 10
----
Total current............................................................... 376
----
Long-term:
Capital leases................................................................... 46
Deferred compensation............................................................ 65
Warranty reserve................................................................. 18
Depreciation..................................................................... (11)
----
Total long-term............................................................. 118
----
Total deferred tax assets................................................... $494
----
----
</TABLE>
NOTE 9 -- RELATED-PARTY TRANSACTIONS
As discussed in Note 6, on September 26, 1996, Aircond redeemed all of the
outstanding preferred stock of Aircond through the issuance of a note payable.
The former stockholder from which the stock was redeemed is related to the
majority stockholder. Interest expense on this related party note payable was
approximately $109,000 for the year ended September 30, 1997.
F-112
<PAGE>
<PAGE>
AIRCOND CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- EMPLOYEE BENEFIT PLAN
Aircond has a profit sharing plan that covers substantially all employees
with over one year of service. Total contributions by Aircond under the plan
were $150,000, $200,000 and $160,000 for the years ended September 30, 1995,
1996 and 1997, respectively.
NOTE 11 -- FINANCIAL INSTRUMENTS
Aircond's financial instruments consist of cash and cash equivalents,
short-term investments, accounts receivable and payable, accrued expenses and
debt. Except for capital lease obligations, Aircond believes that the carrying
value of these instruments on the accompanying balance sheets approximate their
fair value due to their nature. The note payable to the former preferred
stockholder reflects current market rates of interest. Capital lease obligations
at September 30, 1997 would total approximately $1,728,000 using the current
market rates.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
Aircond entered into a deferred compensation agreement with a former
officer in 1986 which in the aggregate provided for annual compensation ranging
from approximately $17,000 to $39,000 through 2006, and $10,000 for the period
2007 until death. A liability was recorded as of the date of the agreement for
the present value of the obligations under this deferred compensation
arrangement. The minimum payments reduce this balance.
INSURANCE
Aircond carries a broad range of insurance coverage, including business
auto liability, general liability and an umbrella policy. Aircond has not
incurred significant claims or losses on any of these insurance policies.
NOTE 13 -- SUBSEQUENT EVENTS (UNAUDITED)
Aircond and its stockholders have entered into a definitive agreement with
Enfinity pursuant to which Aircond will merge with a wholly owned subsidiary of
Enfinity. All outstanding shares of Aircond will be exchanged for cash and
common stock of Enfinity concurrently with the consummation of the initial
public offering of the common stock of Enfinity.
F-113
<PAGE>
<PAGE>
_________________________________ ________________________________
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
Offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the shares of Common Stock to which it relates or an offer
to, or a solicitation of, any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 9
The Company................................................................................................................. 15
Use of Proceeds............................................................................................................. 17
Dividend Policy............................................................................................................. 17
Capitalization.............................................................................................................. 18
Dilution.................................................................................................................... 19
Selected Financial Data..................................................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 22
Business.................................................................................................................... 35
Management.................................................................................................................. 46
Certain Transactions........................................................................................................ 51
Principal Stockholders...................................................................................................... 54
Description of Capital Stock................................................................................................ 55
Shares Eligible for Future Sale............................................................................................. 58
Underwriting................................................................................................................ 60
Legal Matters............................................................................................................... 62
Experts..................................................................................................................... 62
Additional Information...................................................................................................... 62
Index to Financial Statements............................................................................................... F-1
</TABLE>
Until , 1998 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities offered hereby,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
8,000,000 SHARES
ENFINITY CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
NationsBanc Montgomery
Securities LLC
Lehman Brothers
Raymond James
& Associates, Inc.
, 1998
_________________________________ ________________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with this Offering. All of
such amounts (except the SEC Registration Fee and the NASD Filing Fee) are
estimated.
<TABLE>
<S> <C>
SEC registration fee...................................................................... 39,353.00
New York Stock Exchange listing fee....................................................... *
NASD filing fee........................................................................... 13,840.00
Blue Sky fees and expenses................................................................ *
Printing and Engraving Costs.............................................................. 450,000.00
Legal fees and expenses................................................................... *
Accounting fees and expenses.............................................................. 1,750,000.00
Transfer Agent and Registrar fees and expenses............................................ 50,000.00
Miscellaneous............................................................................. *
Total.....................................................................................$4,000,000.00
</TABLE>
- ------------
* To be provided.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's By-Laws provide that the Company shall, to the fullest extent
permitted by Section 145 of the General Corporation Law of the State of Delaware
(the 'DGCL'), as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by third parties by reason of the fact that
they were or are directors, officers, employees or agents of the corporation, if
such directors, officers, employees or agents acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reason to believe their conduct was unlawful. In a derivative action, i.e., one
by or in the right of the corporation, indemnification may be made only for
expenses actually and reasonably incurred by directors, officers, employees or
agents in connection with the defense or settlement of an action or suit, and
only with respect to a matter as to which they shall have acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged liable to the corporation, unless and only
to the extent that the court in which the action or suit was brought shall
determine upon application that the defendant directors, officers, employees or
agents are fairly and reasonably entitled to indemnity for such expenses despite
such adjudication of liability.
Article Seven of the Company's Certificate of Incorporation provides that
the Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to the
Company or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions, or (d) for transactions from which
directors derive improper personal benefit.
Section 8 of the Underwriting Agreement to be filed as Exhibit 1 provides
that the Underwriters named therein will indemnify and hold harmless the Company
and each director, officer or controlling person of the Company from and against
certain liabilities, including liabilities under the Securities Act. Section 8
of such Underwriting Agreement also provides that such Underwriters will
contribute to certain liabilities of such persons under the Securities Act.
II-1
<PAGE>
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information relates to securities of the Company issued or
sold by the Company within the past three years which were not registered under
the Securities Act:
In September 1997, the Company issued (i) four shares of Common Stock to
each of William J. Lynch, James Lynch and Leonard A. Potter in return for
payment to the Company by each of such persons of $400; and (ii) three shares of
Common Stock to Capstone in return for payment to the Company by Capstone of
$300. In February 1998, the Company issued, as previously agreed, 2.012611
shares of its Common Stock to Marty R. Kittrell and 0.950959 shares of its
Common Stock to Ellwood F. Whitchurch in return for payment to the Company by
such persons of $201.26 and $95.10, respectively. In May 1998, the Company
issued, as previously agreed, 11.55641 shares of its Common Stock to Rodney
C. Gilbert in return for payment to the Company by him of $1,155.64. The
share totals in this paragraph do not give effect to an approximate
36,804.93-for-1 stock split to be effected in the form of a stock dividend
prior to the consummation of this Offering.
Simultaneously with the consummation of this Offering, the Company will
issue 8,243,970 shares of its Common Stock in connection with the Mergers of
the eight Founding Companies. The Company also will exchange options to
purchase 119,500 shares of Common Stock of the Company at an exercise price
of $8.38 per share for options to purchase 50,000 shares of common stock of
one of the Founding Companies.
Each of these transactions was effected or will be effected without
registration of the relevant security under the Securities Act in reliance upon
the exemption provided by Section 4(2) of the Securities Act and Regulation D
thereunder for transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Aircond
Acquisition Corp., Aircond Corporation and the Stockholders named therein
2.2 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Brandt
Acquisition Corp., Brandt Mechanical Services, Inc. and the Stockholders named therein
2.3 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Energy
Systems Industries Acquisition Corp., Energy Systems Industries, Inc. and the Stockholders named therein
2.4 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation,
Hill-York Acquisition Corp., Hill York Corporation and the Stockholders named therein
2.5 -- Agreement and Plan of Organization, dated as of May 14, 1998 , by and among Enfinity Corporation, Hill-York
Service Acquisition Corp., Hill-York Service Corporation and the Stockholders named therein
2.6 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Lee
Acquisition Corp., Lee Company and the Stockholders named therein
2.7 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, MSI
Acquisition Corp., Mechanical Services of Orlando, Inc. and the Stockholders named therein
2.8 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, New
England Mechanical Services Acquisition Corp., New England Mechanical Services, Inc. and the Stockholders
named therein
2.9 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Air
Systems Acquisition Corp., Air Systems, Inc. and the Stockholders named therein
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company
5 -- Opinion of Morgan, Lewis & Bockius LLP*
10.1 -- 1998 Long-Term Incentive Plan of the Company
10.2 -- Form of Employment Agreement between the Company and Rodney C. Gilbert*
10.3 -- Form of Employment Agreement between the Company and Marty R. Kittrell*
10.4 -- Form of Employment Agreement between the Company and William M. Dillard*
10.5 -- Form of Employment Agreement between the Company and Alan L. Barnes, Sr.*
</TABLE>
II-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------------------------------
<C> <S>
10.6 -- Form of Employment Agreement between the Company and Robert S. Lafferty*
10.7 -- Form of Employment Agreement between the Company and William B. Lee*
10.8 -- Form of Employment Agreement between the Company and Charles P. Reagan*
10.9 -- Form of Employment Agreement between the Company and Anthony I. Shaker*
10.10 -- Form of Employment Agreement between the Company and Mark A. Zilbermann*
10.11 -- Form of Employment Agreement between the Company and John W. Davis*
21 -- List of subsidiaries of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Shilling and Kenyon, Inc.
23.3 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
23.4 -- Consent of Alan L. Barnes, Sr. to be named as a director
23.5 -- Consent of Robert S. Lafferty to be named as a director
23.6 -- Consent of William B. Lee to be named as a director
23.7 -- Consent of Charles P. Reagan to be named as a director
23.8 -- Consent of Anthony I. Shaker to be named as a director
23.9 -- Consent of Mark A. Zilbermann to be named as a director
23.10 -- Consent of Marty R. Kittrell to be named as a director
23.11 -- Consent of John W. Davis to be named as a director
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) The undersigned will provide to the underwriters at the closing
specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
(2) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance on Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, THE STATE OF
NEW YORK, ON THE 14TH DAY OF MAY, 1998.
ENFINITY CORPORATION
By: /s/ RODNEY C. GILBERT
...............................
RODNEY C. GILBERT
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Rodney C. Gilbert and Marty R. Kittrell, and each
of them, with full power to act without the other, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign this Registration Statement, any and all amendments thereto
(including post-effective amendments), any subsequent Registration Statements
pursuant to Rule 462 of the Securities Act of 1933, as amended, and any
amendments thereto and to file the same, with exhibits and schedules thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
necessary or desirable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------------------- ------------------
<C> <S> <C>
/s/ RODNEY C. GILBERT Chairman of the Board and May 14, 1998
......................................... Chief Executive Officer
RODNEY C. GILBERT (Principal Executive Officer)
/s/ MARTY R. KITTRELL Executive Vice President and Chief Financial May 14, 1998
......................................... Officer (Principal Financial and Accounting
MARTY R. KITTRELL Officer)
/s/ WILLIAM J. LYNCH Director May 14, 1998
.........................................
WILLIAM J. LYNCH
/s/ WILLIAM M. DILLARD President and Director May 14, 1998
.........................................
WILLIAM M. DILLARD
</TABLE>
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------------------------------------------
<C> <S>
1 -- Form of Underwriting Agreement*
2.1 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Aircond
Acquisition Corp., Aircond Corporation and the Stockholders named therein
2.2 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Brandt Acquisition
Corp., Brandt Mechanical Services, Inc. and the Stockholders named therein
2.3 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Energy Systems
Industries Acquisition Corp., Energy Systems Industries, Inc. and the Stockholders named therein
2.4 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Hill-York
Acquisition Corp., Hill York Corporation and the Stockholders named therein
2.5 -- Agreement and Plan of Organization, dated as of May 14, 1998 , by and among Enfinity Corporation, Hill-York Service
Acquisition Corp., Hill-York Service Corporation and the Stockholders named therein
2.6 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Lee Acquisition
Corp., Lee Company and the Stockholders named therein
2.7 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, MSI Acquisition
Corp., Mechanical Services of Orlando, Inc. and the Stockholders named therein
2.8 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, New England
Mechanical Services Acquisition Corp., New England Mechanical Services, Inc. and the Stockholders named therein
2.9 -- Agreement and Plan of Organization, dated as of May 14, 1998, by and among Enfinity Corporation, Air Systems
Acquisition Corp., Air Systems, Inc. and the Stockholders named therein
3.1 -- Amended and Restated Certificate of Incorporation of the Company
3.2 -- By-Laws of the Company
5 -- Opinion of Morgan, Lewis & Bockius LLP*
10.1 -- 1998 Long-Term Incentive Plan of the Company
10.2 -- Form of Employment Agreement between the Company and Rodney C. Gilbert*
10.3 -- Form of Employment Agreement between the Company and Marty R. Kittrell*
10.4 -- Form of Employment Agreement between the Company and William M. Dillard*
10.5 -- Form of Employment Agreement between the Company and Alan L. Barnes, Sr.*
10.6 -- Form of Employment Agreement between the Company and Robert S. Lafferty*
10.7 -- Form of Employment Agreement between the Company and William B. Lee*
10.8 -- Form of Employment Agreement between the Company and Charles P. Reagan*
10.9 -- Form of Employment Agreement between the Company and Anthony I. Shaker*
10.10 -- Form of Employment Agreement between the Company and Mark A. Zilbermann*
10.11 -- Form of Employment Agreement between the Company and John W. Davis*
21 -- List of subsidiaries of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2 -- Consent of Shilling and Kenyon, Inc.
23.3 -- Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5)
23.4 -- Consent of Alan L. Barnes, Sr. to be named as a director
23.5 -- Consent of Robert S. Lafferty to be named as a director
23.6 -- Consent of William B. Lee to be named as a director
23.7 -- Consent of Charles P. Reagan to be named as a director
23.8 -- Consent of Anthony I. Shaker to be named as a director
23.9 -- Consent of Mark A. Zilbermann to be named as a director
23.10 -- Consent of Marty R. Kittrell to be named as a director
23.11 -- Consent of John W. Davis to be named as a director
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
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</TABLE>
* To be filed by amendment.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as.............................. 'SS'
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
AIRCOND ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
AIRCOND CORPORATION
and
the STOCKHOLDERS named herein
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TABLE OF CONTENTS
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Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, HOLDING and NEWCO.......................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................17
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
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5.22 Taxes...........................................................20
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................25
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............28
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................31
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................31
6.6 Financial Statements............................................32
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................35
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................41
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............43
7.10 Final Financial Statements......................................43
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7.11 Further Assurances..............................................44
7.12 Authorized Capital..............................................44
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................45
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................46
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................47
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................48
9.8 Opinion of Counsel..............................................48
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................49
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............49
10.1 Release From Guarantees; Repayment of Certain Obligations.......49
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................50
10.4 Preservation of Employee Benefit Plans..........................50
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
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11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................57
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................58
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................60
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................62
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS....................................................63
17.2 Representations and Warranties of the STOCKHOLDERS..............64
17.3 Representations and Warranties of HOLDING and NEWCO.............64
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18. GENERAL...............................................................66
18.1 Cooperation.....................................................66
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................67
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................69
18.10 Time............................................................69
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................70
</TABLE>
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF
HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), AIRCOND
ACQUISITION CORP., a Delaware corporation ("NEWCO"), AIRCOND CORPORATION, a
Georgia corporation (the "COMPANY"), and Alan L. Barnes, Sr., Mary Elizabeth
Barnes, Alan L. Barnes, Jr. and Kevin H. Barnes (the "STOCKHOLDERS"). The
STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Georgia;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Energy Systems Industries, Inc., New England
Mechanical Services, Inc., Lee Company, Hill York Corporation, Hill York Service
Corporation and Mechanical Services of Orlando, Inc. (collectively, the "Other
Founding Companies") and their respective stockholders in order to acquire
additional providers of commercial and industrial heating, ventilation, air
conditioning, energy and environmental services (the COMPANY, together with each
of the Other Founding Companies, are collectively referred to herein as the
"Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
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COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
2
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"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
3
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"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Georgia.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
4
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"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
5
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<PAGE>
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Georgia and stamped receipt copies of
each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Georgia and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and
6
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voting rights of each class of outstanding capital stock of the COMPANY, HOLDING
and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Georgia. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to the same extent
7
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<PAGE>
as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
8
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust, subject to an escrow letter
agreement in form and content reasonably acceptable to the STOCKHOLDERS, to
Morgan, Lewis & Bockius LLP, counsel to HOLDING, at the Pre-Closing the
certificates representing COMPANY Stock, duly endorsed in blank by the
STOCKHOLDERS, or accompanied by stock powers duly endorsed in blank, with
signatures guaranteed by a national or state chartered bank or other financial
institution, and with all necessary Transfer Tax and other revenue stamps,
acquired at the STOCKHOLDERS' expense, affixed and canceled. To the extent
reasonably required, the STOCKHOLDERS agree promptly to cure any deficiencies
with respect to the endorsement of the stock certificates or other documents of
conveyance with respect to such COMPANY Stock or with respect to the stock
powers accompanying any COMPANY Stock. Upon consummation of the IPO and the
transactions contemplated to occur on the Closing Date (including, without
limitation, the tender to each STOCKHOLDER (or to its agent) of the shares and
cash set forth on Annex III hereto), all of such certificates shall be deemed
released and surrendered by such counsel to HOLDING without any further action
on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Georgia in order to withdraw the Certificate of Merger and rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Pre-Closing") shall take place on the
Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall
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be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall occur and (z) the closing with
respect to the IPO shall occur and be deemed to be completed. The date on which
the actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." During the period from the Pre-Closing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now
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conducted except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of the COMPANY (as used herein with respect to the
COMPANY, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the COMPANY is incorporated
and contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete, correct and certified copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
COMPANY (the "Charter Documents") are all attached to Schedule 5.1. The minute
books and stock records of the COMPANY, as heretofore made available to HOLDING,
are correct and complete in all material respects. The most recent minutes of
the COMPANY, which are dated no earlier than ten business days prior to the date
hereof, affirm and ratify all prior acts of the COMPANY and of its officers and
directors on behalf of the COMPANY to the extent any such acts are of a nature
that require action by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other
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rights to acquire shares of the COMPANY's stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, 1996 and 1995 and the Consolidated Statements of Income, Cash
Flows and Retained Earnings for each of the years in the three-year period ended
December 31, 1997 (December 31, 1997 being hereinafter referred to as the
"Balance Sheet Date"). Such Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
5.9). Except as set forth on Schedule 5.9, such Consolidated Balance Sheets as
of December 31, 1997, 1996 and 1995 present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon, and such
Consolidated Statements of Income, Cash Flows and Retained Earnings present
fairly in all material respects the results of operations and cash flows for the
periods indicated thereon.
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5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities
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were incurred thereafter in the ordinary course of business consistent with past
practice and are not material either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the
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COMPANY has delivered to HOLDING an accurate list and summary description (which
is set forth on Schedule 5.12(b)) of all such licenses, franchises, permits and
other governmental authorizations held the Company, including all permits,
titles, licenses, franchises and certificates (it being understood and agreed
that a list of all environmental permits and other environmental approvals
required to be identified under this Agreement is set forth on Schedule 5.13).
To the knowledge of the COMPANY, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.12(b) and 5.13 are valid, and
the COMPANY has not received any notice that any governmental authority intends
to cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in violation of
any of the foregoing except where such non-compliance or violation would not
have a Material Adverse Effect. Except as specifically provided in Schedule
5.12(a) or 5.12(b), the transactions contemplated by this Agreement will not
result in the infringement by the COMPANY of any Intellectual Property right of
any other person or entity or the infringement of any Intellectual Property
listed on Schedule 5.12(a), or result in a default under or a breach or
violation of, or materially and adversely affect the rights and benefits
afforded to the COMPANY by, any licenses, franchises, permits or government
authorizations listed on Schedule 5.12(b) or Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and
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Liability Act of 1980, as amended; and (v) the COMPANY has no material
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or
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agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received by the COMPANY or any of the
STOCKHOLDERS. The COMPANY has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations or the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
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insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan"
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(within the meaning of Section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. The COMPANY does not currently maintain or contribute, and has not in
the past three years maintained or contributed, to any employee pension benefit
plan other than the plans set forth on Schedule 5.19, nor is the COMPANY
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the COMPANY's employees, except as set forth on Schedule
5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
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(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
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(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
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(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii)No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
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(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
(xviii) "Since October 1, 1996, the COMPANY at all times was an "S"
Corporation within the meaning of Section 1361 of the Code and, if
applicable, under the laws of the State of Georgia.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their
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obligations hereunder and the consummation by the COMPANY and the STOCKHOLDERS
of the transactions contemplated hereby will not result in any violation or
breach of, or constitute a default under, any of the terms or provisions of the
Material Documents or the Charter Documents. Except as set forth on Schedule
5.23, none of the Material Documents requires notice to, or the consent or
approval of, any governmental agency or other third party with respect to any of
the transactions contemplated hereby in order to remain in full force and effect
and consummation of the transactions contemplated hereby will not give rise to
any right to termination, cancellation or acceleration or loss of any right or
benefit. Except as set forth on Schedule 5.23, none of the Material Documents
prohibits the use or publication by the COMPANY, HOLDING or NEWCO of the name of
any other party to such Material Document, and none of the Material Documents
prohibits or restricts the COMPANY from freely providing services to any other
customer or potential customer of the COMPANY, HOLDING, NEWCO or any Other
Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
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(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
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(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at
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the date of this Agreement and on the Pre-Closing Date and on the Closing Date,
shall be a precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither HOLDING nor any of its shareholders, officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person or entity
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent
to the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
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5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of the COMPANY or has any material claim whatsoever against or owes any
amount to the COMPANY, except for claims in the ordinary course of business such
as for accrued vacation pay and accrued benefits under employee benefit plans.
"Family Member" as it applies to any person shall mean all relatives and their
spouses in a relationship of first cousin or closer to such person or such
person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
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(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those STOCKHOLDERS
that are trusts, its trustee or trustees) is capable of evaluating the merits
and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY CORPORATION
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
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6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and
NEWCO in compliance with all applicable state and Federal laws concerning
the issuance of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO
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owns, of record or beneficially, or controls, directly or indirectly, any
capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet as of
December 31, 1997 presents fairly the financial position of HOLDING as of such
date, and such Statements of Income, Cash Flows and Retained Earnings present
fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
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(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the
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execution of this Agreement and the performance of HOLDING's and NEWCO's
obligations hereunder and the consummation by them of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default under any of the terms or provisions of the HOLDING Documents or the
HOLDING Charter Documents. Except as set forth on Schedule 6.9, none of the
HOLDING Documents requires notice to, or the consent or approval of, any
governmental agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and the
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
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6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other
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period not so examined. Schedule 6.14(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any corporation in the HOLDING Relevant Group for all taxable
periods, indicates those Returns, if any, that have been audited, and
indicates those Returns that currently are the subject of audit. Each
corporation in the HOLDING Relevant Group will make available to the
COMPANY and the STOCKHOLDERS, at their request, complete and correct
copies of all federal, state, local and foreign income Tax Returns filed
by, and all Tax examination reports and statements of deficiencies
assessed against or agreed to by, HOLDING.
(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
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(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502- 15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will
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cooperate with HOLDING and the Other Founding Companies and their respective
representatives, including HOLDING's auditors and counsel, in the preparation of
any documents or other material (including the Registration Statement) which may
be required in connection with the transactions contemplated by this Agreement.
HOLDING, NEWCO, the STOCKHOLDERS and the COMPANY will treat all information
obtained in connection with the negotiation and performance of this Agreement or
the due diligence investigations conducted with respect to the Other Founding
Companies as confidential in accordance with the provisions of Section 14
hereof. In addition, HOLDING will cause each of the Other Agreements, binding
each of the Other Founding Companies, to contain a provision similar to this
Section 7.1 requiring each such Other Founding Company, its stockholders,
directors, officers, representatives, employees and agents to keep confidential
any information obtained by such Other Founding Company and to provide the
COMPANY with reasonable access and information as will be provided by the
COMPANY pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
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(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B)
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materialmen's, mechanics', workers', repairmen's, employees' or other like
liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
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7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a
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Schedule prepared by HOLDING or NEWCO that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless a
majority of the Founding Companies consent to such amendment or supplement. In
the event that one of the Other Founding Companies seeks to amend or supplement
a Schedule pursuant to Section 7.8 of one of the Other Agreements, and such
amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on such Other Founding Company or upon
HOLDING, then HOLDING shall give the COMPANY notice promptly after it has
knowledge thereof, which notice shall give in reasonable detail the facts and
circumstances underlying such amendment or supplement. If HOLDING and a majority
of the Founding Companies consent to such amendment or supplement, then such
amendment or supplement shall become effective whether or not the COMPANY has
given its consent; provided, that if such amendment or supplement constitutes or
reflects an event or occurrence that would have a Material Adverse Effect on the
Other Founding Company that is proposing such amendment or supplement or on
HOLDING and the COMPANY does not consent (or is not deemed to have consented) to
such amendment or supplement, then the COMPANY shall have the right to terminate
this Agreement by notice to HOLDING given prior to the earlier of the Effective
Time of the Merger and the fifth day following the date on which HOLDING gives
notice to the COMPANY seeking its consent to such amendment or supplement.
Consent shall have been deemed given for all purposes of this Agreement by
HOLDING or any Founding Company if no response is received from HOLDING or any
such Founding Company within 24 hours following receipt of notice of such
amendment or supplement (or sooner if required by the exigencies of the
circumstances under which such consent is requested). In the event that the
COMPANY seeks to amend or supplement a Schedule pursuant to this Section 7.8 and
HOLDING and a majority of the Other Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof. In the event that HOLDING or NEWCO seeks to amend or supplement a
Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent (or are not deemed to have consented) to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of
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pocket costs reasonably incurred in connection with this Agreement and the IPO
as it relates to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly
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in all material respects the financial position of the COMPANY as of the dates
indicated thereon and the results of operations and cash flows of the COMPANY
for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the
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Closing Date and signed by the President or any Vice President of HOLDING shall
have been delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in
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all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to HOLDING certificates dated the Pre-Closing
Date and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
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9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date), substantially in the form annexed hereto as Annex VII,
and covering matters customary under the circumstances or covering such
additional matters as the Underwriters may reasonably request, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by HOLDING. In the event that HOLDING
cannot obtain such releases from the lenders of any such guaranteed indebtedness
on or prior to the 90th day subsequent to the Closing Date, HOLDING shall pay
off or otherwise refinance or retire such indebtedness and, if HOLDING cannot
obtain such releases on or prior to the Closing Date, then HOLDING agrees to
indemnify the STOCKHOLDERS against any and all claims made against them by the
beneficiaries of such guarantees which arise as a result of HOLDING's failure to
cause such guarantees to be released on or prior to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
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10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions. Notwithstanding the foregoing, on or following the
Closing Date, HOLDING may require that the COMPANY freeze or terminate any
defined benefit pension plans in effect at the COMPANY at any time, subject to
applicable laws, and HOLDING shall have no obligation to provide replacement
defined benefit pension plans; provided that the COMPANY may continue to make
required contributions to the Atlanta Plumbers and Steamfitters Supplemental
Pension Plan with respect to its unionized employees.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the
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COMPANY set forth herein or on the schedules or certificates delivered in
connection herewith as of the date made and as of the date any such
representations and warranties are re-confirmed, (ii) any breach on the part of
the STOCKHOLDERS or the COMPANY of any agreement under this Agreement, (iii) any
liability under the 1933 Act, the 1934 Act or other Federal or state law or
regulation, at common law or otherwise, either (1) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating to
the COMPANY or the STOCKHOLDERS, and provided in writing to HOLDING or its
counsel by the COMPANY or the STOCKHOLDERS for inclusion in the Registration
Statement or any prospectus forming a part thereof, or any amendment thereof or
supplement thereto, or (2) arising out of or based upon any omission or alleged
omission to state therein a material fact relating to the COMPANY or the
STOCKHOLDERS required to be stated therein or necessary to make the statements
therein not misleading and not provided to HOLDING or its counsel by the COMPANY
or its STOCKHOLDERS for inclusion in the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, (iv) the matters described on Schedule 11.1(iv), (v) any Tax relating
to a period ending on or before the Closing Date (or any portion of a period
ending after the Closing Date that relates to the portion of such period ending
on the Closing Date, using the closing of the books method) that has not been
paid on or before the Closing Date, or (vi) any Tax imposed upon or relating to
any third party for a pre-Closing Date period, including, in each case, any such
Tax for which an Acquired Party may be liable under Section 1.1502-6 of the
Treasury Regulations (or any similar provisions of state, local of foreign law),
as a transferee or successor, by contract or otherwise, provided, however, (A)
that in the case of any indemnity arising pursuant to clause (iii), such
indemnity shall not inure to the benefit of HOLDING, NEWCO, the COMPANY or the
Surviving Corporation to the extent that such untrue statement (or alleged
untrue statement) was made in, or omission (or alleged omission) occurred in,
any preliminary prospectus and the STOCKHOLDERS provided, in writing, corrected
information to HOLDING's counsel and to HOLDING for inclusion in the final
prospectus, and such information was not so included or properly delivered, and
(B) that each STOCKHOLDER shall be liable for indemnification obligations
pursuant to this Section 11.1 that are attributable to a breach of any
representation, warranty or agreement made in Sections 5.31 through 5.35 by that
STOCKHOLDER and not for breach of the representations, warranties or agreements
made in Sections 5.31 through 5.35 by any other STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be
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responsible for the liabilities and obligations of the COMPANY as provided in
Section 1 hereof (except to the extent that HOLDING or NEWCO has claims against
the STOCKHOLDERS by reason of such liabilities); (iv) any liability under the
1933 Act, the 1934 Act or other Federal or state law or regulation, at common
law or otherwise, either (1) arising out of or based upon any untrue statement
or alleged untrue statement of a material fact relating to HOLDING or NEWCO
included in any preliminary prospectus, the Registration Statement or any
prospectus forming a part thereof, or any amendment thereof or supplement
thereto, or (2) arising out of or based upon any omission or alleged omission to
state therein a material fact relating to HOLDING or NEWCO required to be stated
therein or necessary to make the statements therein not misleading or (v) the
matters described on Schedule 11.2(v).
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and
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complete settlement of any such Third Person claim, which settlement provides
solely for the payment of monetary damages and effects a full release of the
Indemnified Party from all matters related to the claim, and the Indemnified
Party refuses to consent to such settlement, then the Indemnifying Party's
liability under this Section with respect to such Third Person claim shall be
limited to the amount so offered in settlement to said Third Person, and the
Indemnifying Party, upon payment of such settlement amount to such Third Person,
shall be deemed released from any and all obligation or liability with respect
thereto and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not
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be counted towards the Indemnification Threshold, other than with respect to the
matters specified in Schedule 11.5 which shall count toward the Indemnification
Threshold. The STOCKHOLDERS shall not assert any claim for indemnification
hereunder against HOLDING or NEWCO until such time as, and solely to the extent
that, the aggregate of all claims which the STOCKHOLDERS may have against
HOLDING or NEWCO shall exceed, in the aggregate for all such claims, $100,000,
provided, however, that the STOCKHOLDERS and the other persons or entities
indemnified pursuant to Section 11.2 may assert and shall be indemnified for any
claim under Section 11.2(v) at any time, regardless of whether the aggregate of
all claims which such persons and entities may have against any of HOLDING or
NEWCO exceeds $100,000, it being understood that the amount of any such claim
under Section 11.2(v) shall not be counted towards such $100,000 amount. No
person shall be entitled to indemnification under this Section 11 if and to the
extent that such person's claim for indemnification is directly or indirectly
related to a breach by such person of any representation, warranty, covenant or
other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
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(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the
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purpose of soliciting or selling products or services in direct competition with
HOLDING (or any of the subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
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13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
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14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations
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hereunder, the STOCKHOLDER shall not (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose (a "Transfer") of (a)
any shares of HOLDING Stock received by the STOCKHOLDER pursuant to the terms
hereof or (b) any interest (including, without limitation, an option to buy or
sell) in any such shares of HOLDING Stock, in whole or in part, and no such
attempted Transfer shall be treated as effective for any purpose; or (ii) engage
in any transaction, whether or not with respect to any shares of HOLDING Stock
or any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of HOLDING Stock acquired pursuant hereto (including, by way
of example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions); provided, that from and after the 24th month
following the Closing Date, the STOCKHOLDER shall be entitled to make such a
Transfer of up to 50% of the number shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
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16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be included
in such registration all of the HOLDING Stock issued to the STOCKHOLDERS
pursuant to this Agreement or transferred to such Permitted Transferees which
any such STOCKHOLDER or Permitted Transferees requests be included in such
registration, provided that HOLDING shall have the right to reduce the number of
shares to be included by the STOCKHOLDER in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to HOLDING
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if the proposed offering is a firm commitment
underwritten offering and HOLDING is advised in writing in good faith by any
managing underwriter of the securities being offered that the number of shares
to be included in such registration is greater than the number of such shares
which can be offered without adversely affecting the offering, HOLDING may
reduce pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on
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which HOLDING gave such notice to such Founding Stockholders, file and
thereafter use its best efforts to cause to become effective a registration
statement covering all shares that such Founding Stockholders have requested to
be included in such registration, which requests must be delivered to HOLDING no
later than 30 days following HOLDING's delivery of such notice to such Founding
Stockholders. HOLDING shall be obligated to effect only one Demand Registration
for all Founding Stockholders and will keep such Demand Registration current and
effective for 120 days (or such shorter period as is required to sell all of the
shares registered thereon).
(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be
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extended for the period of time equal to the period for which the STOCKHOLDER
was required to refrain from selling shares; (ii) use its best efforts to
register and qualify the HOLDING Stock covered by such registration statement
under applicable state securities laws as the holders shall reasonably request
for the distribution of the HOLDING Stock; and (iii) take such other actions as
are reasonable and necessary to comply with the requirements of the 1933 Act and
the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of HOLDING's size and investment stature,
including reasonable and customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for
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the benefit of and will be relied upon by Morgan, Lewis & Bockius LLP for
purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have run for all tax
periods ended on or prior to or which include the Closing Date, which shall be
deemed to be the Expiration Date for purposes of this Section 17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
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(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have run for all tax periods ended on or
prior to or which include the Closing Date, which shall be deemed to be the
Expiration Date for purposes of this Section 17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that
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such HOLDER surrenders pursuant to this Agreement or the Other Agreements, as
the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
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18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
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18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
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(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
AIRCOND Corporation
400 Lake Ridge Drive
Smyrna, GA 30082
Facsimile No.: (770) 434-7858
Attn: Alan L. Barnes, Sr.
and marked "Personal and Confidential"
with copies to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, GA 30308
Facsimile No.: (404) 527-4198
Attn: F.T. Davis, Jr.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters
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covered by the General Corporation Law of the State of Delaware shall be
governed by such General Corporation Law and matters herein strictly within the
purview of the matters covered by the corporate law of the State of Georgia
shall be governed thereby, in each case without reference to its conflicts of
law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
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18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Alan L. Barnes, Sr. (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any other matters concerning the transactions contemplated by
this Agreement, both before and after the Closing, and all action taken by the
STOCKHOLDER Representative hereunder shall be binding upon all of the
STOCKHOLDERS, and their respective successors, heirs, representatives and
assigns as if expressly confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to anyone with respect to any action or inaction taken by
him except those involving his own willful misconduct or gross negligence. The
STOCKHOLDER Representative may, in all questions arising under this Agreement,
rely on the advice of counsel and for anything done, omitted or suffered in good
faith by the STOCKHOLDER Representative based on such advice, the STOCKHOLDER
Representative, in his capacity as such, shall not be liable to anyone. Nothing
set forth in this Section 18.16(b) shall in any way relieve the STOCKHOLDERS, in
their capacities as STOCKHOLDERS, of their obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
(d) Each of the STOCKHOLDERS acknowledges and agrees that none of HOLDING,
NEWCO, any of their Affiliates nor any of their respective officers and
directors shall have any liability to such STOCKHOLDER as a result of any act,
omission or other set of circumstances relating to the STOCKHOLDER
Representative.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
---------------------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
AIRCOND ACQUISITION CORP.
By: /s/ William M. Dillard
---------------------------------------
Name: William M. Dillard
Title: President
AIRCOND CORPORATION
By: /s/ Alan L. Barnes, Sr.
---------------------------------------
Name: Alan L. Barnes, Sr.
Title: President
STOCKHOLDERS:
/s/ Alan L. Barnes, Sr.
------------------------------------------
Alan L. Barnes, Sr.
/s/ Mary Elizabeth Barnes
------------------------------------------
Mary Elizabeth Barnes
/s/ Alan L. Barnes, Jr.
------------------------------------------
Alan L. Barnes, Jr.
/s/ Kevin H. Barnes
------------------------------------------
Kevin H. Barnes
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $8,001,079 and 960,129 shares of Common Stock
of HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------------------- ----------------
<S> <C> <C>
Alan Barnes, Sr. 483,329 $4,027,743
Mary Eliz. Barnes 188,761 1,573,012
Alan Barnes, Jr. 156,021 1,050,142
Kevin Barnes 132,018 1,350,182
------- ---------
TOTALS: 960,129 $8,001,079
</TABLE>
MINIMUM VALUE: $18,562,498 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 640,086 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of
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such amount, (1) does not cause the COMPANY to have a current ratio of less than
1.33 (the current ratio being defined as the ratio of current assets after
withdrawal of all cash included in such payment to current liabilities), (2)
does not cause the COMPANY to have a debt to equity ratio of greater than 2.25
and (3) does not have debt in excess of the average total debt outstanding of
the COMPANY during the two-year period preceding the Balance Sheet Date. The
payment of such amount to the STOCKHOLDERS shall be made to the STOCKHOLDERS,
pro rata, in accordance with their respective percentage ownership interests in
the COMPANY immediately prior to the Merger. Prior to making any such payment to
the STOCKHOLDERS, the COMPANY shall have the amount of such payment approved by
HOLDING and, to the extent payment of such amount exceeds available cash as of
the Closing Date (a "Shortfall"), HOLDING shall cause the COMPANY to make such
payment to the STOCKHOLDERS in accordance with HOLDING'S instructions (which may
require that the COMPANY draw on its line of credit to the extent of the
Shortfall or receive funds from HOLDING to the extent of the Shortfall).
- ----------------
The promissory note payable to Fayoline Maffet Barnes Paul, in the amount of
$1,216,500 shall be paid by HOLDING at the Closing, together with accrued
interest thereon through the date of payment . Such payment shall not reduce or
dilute payments of cash or distributions of shares of HOLDING due to the
STOCKHOLDERS hereunder.
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
BRANDT ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
BRANDT MECHANICAL SERVICES, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, HOLDING and NEWCO.......................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................11
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................18
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
</TABLE>
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<TABLE>
<S> <C> <C>
5.22 Taxes...........................................................21
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................26
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............28
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................31
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................32
6.6 Financial Statements............................................32
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................35
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................41
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............43
7.10 Final Financial Statements......................................43
</TABLE>
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<TABLE>
<S> <C> <C>
7.11 Further Assurances..............................................44
7.12 Authorized Capital..............................................44
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................45
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................46
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................47
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................48
9.8 Opinion of Counsel..............................................48
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................49
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............49
10.1 Release From Guarantees; Repayment of Certain Obligations.......49
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................50
10.4 Preservation of Employee Benefit Plans..........................50
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
</TABLE>
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<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................57
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................60
16.1 Piggyback Registration Rights...................................60
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................62
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS....................................................63
17.2 Representations and Warranties of the STOCKHOLDERS..............64
17.3 Representations and Warranties of HOLDING and NEWCO.............64
</TABLE>
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<TABLE>
<S> <C> <C>
18. GENERAL...............................................................66
18.1 Cooperation.....................................................66
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................67
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................69
18.10 Time............................................................69
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
</TABLE>
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY
AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), BRANDT
ACQUISITION CORP., a Delaware corporation ("NEWCO"), BRANDT MECHANICAL SERVICES,
INC., a Texas corporation (the "COMPANY"), and Mark Zilbermann, Barry Moore,
Craig Reynolds, Karen Reynolds, Jean Reynolds, Paige Reynolds, Tracy Culberson,
Janell Peacock, Jerry Rawlinson, Michael Wyner, William McCauley, Philip
Archilla, Arnold Picon, Ronald Schreiber, Douglas Zilbermann 1997 Trust, Aaron
Zilbermann 1997 Trust, Carson E. Moore Trust and Sydney E. Moore Trust (the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Texas;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Aircond
Corporation, Energy Systems Industries, Inc., New England Mechanical Services,
Inc., Lee Company, Hill York Corporation, Hill York Service Corporation and
Mechanical Services of Orlando, Inc. (collectively, the "Other Founding
Companies") and their respective stockholders in order to acquire additional
providers of commercial and industrial heating, ventilation, air conditioning,
energy and environmental services (the COMPANY, together with each of the Other
Founding Companies, are collectively referred to herein as the "Founding
Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
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WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of HOLDING and NEWCO have approved this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
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"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
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"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Texas.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto
4
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<PAGE>
contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
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"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Texas and stamped receipt copies of
each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Texas and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
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1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
HOLDING and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Texas. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
7
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Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor
8
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restricted in exercising those rights. At the Effective Time of the Merger,
HOLDING shall have no class of capital stock issued and outstanding other than
the HOLDING Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Texas in order to withdraw the Certificate of Merger and rescind
any merger or other actions
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effected by the advance filing of the Articles of Merger as described in this
Section. The taking of the actions described in clauses (i) and (ii) above (the
"Pre-Closing") shall take place on the Pre-Closing date (the "Pre-Closing Date")
at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New
York 10178. On the Closing Date (x) the Articles of Merger shall be or shall
have been filed with the appropriate state authorities so that they shall be or,
as of 8:00 a.m. New York City time on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the
transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall occur and (z) the closing with
respect to the IPO shall occur and be deemed to be completed. The date on which
the actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." During the period from the Pre-Closing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
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5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as set
forth on Schedule 5.1 or (ii) where the failure to be so authorized or qualified
would not have a material adverse effect on the business, operations, affairs,
prospects, properties, assets or condition (financial or otherwise) of the
COMPANY (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete, correct and certified copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to HOLDING, are correct and
complete in all material respects. The most recent minutes of the COMPANY, which
are dated no earlier than ten business days prior to the date hereof, affirm and
ratify all prior acts of the COMPANY and of its officers and directors on behalf
of the COMPANY to the extent any such acts are of a nature that require action
by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its
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respective stockholders has been altered or changed in contemplation of the
Merger and/or the HOLDING Plan of Organization. Schedule 5.4 also includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights to acquire
shares of the COMPANY's stock and a description of the material terms of such
outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 the Consolidated Statements of Income,
Cash Flows and Retained Earnings for each of the years in the two-year period
ended December 31, 1997 (December 31, 1997 being hereinafter referred to as
the "Balance Sheet Date") and the period ended may 25, 1995. Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted thereon or on Schedule 5.9). Except as set forth on
Schedule 5.9, such Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996 present fairly in all material
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respects the financial position of the COMPANY as of the dates indicated
thereon, and such Consolidated Statements of Income, Cash Flows and Retained
Earnings present fairly in all material respects the results of operations and
cash flows for the periods indicated thereon.
5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
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(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities were incurred thereafter in the
ordinary course of business consistent with past practice and are not material
either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge,
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no Intellectual Property owned by the COMPANY is infringed upon by any other
person or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the COMPANY has delivered to HOLDING an accurate list and
summary description (which is set forth on Schedule 5.12(b)) of all such
licenses, franchises, permits and other governmental authorizations held the
Company, including all permits, titles, licenses, franchises and certificates
(it being understood and agreed that a list of all environmental permits and
other environmental approvals required to be identified under this Agreement is
set forth on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12(b) and 5.13 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12(b) and
5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not result in the infringement by the
COMPANY of any Intellectual Property right of any other person or entity or the
infringement of any Intellectual Property listed on Schedule 5.12(a), or result
in a default under or a breach or violation of, or materially and adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.12(b) or
Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of
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Hazardous Wastes and Hazardous Substances for disposal or treatment, which site
is the subject of any Federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against the COMPANY, HOLDING
or NEWCO for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) the COMPANY has no material contingent liability in
connection with any release of any Hazardous Waste or Hazardous Substance into
the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to
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purchase land), other than contracts, commitments and agreements otherwise
listed on Schedule 5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as
of the Balance Sheet Date or (b) entered into since the Balance Sheet Date, and
in each case has delivered true, complete and correct copies of such agreements
to HOLDING. The COMPANY has complied with all material commitments and
obligations pertaining to it, and is not in default under any contracts or
agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received by the COMPANY or any of the
STOCKHOLDERS. The COMPANY has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations or the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
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5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement
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that constitutes an "employee pension benefit plan," nor does the COMPANY have
any obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) or any non-qualified deferred compensation arrangement). For the
purposes of this Agreement, the term "employee pension benefit plan" shall have
the same meaning as is given that term in Section 3(2) of ERISA. The COMPANY
does not currently maintain or contribute, and has not in the past three years
maintained or contributed, to any employee pension benefit plan other than the
plans set forth on Schedule 5.19, nor is the COMPANY required to contribute to
any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions of employment of any of the
COMPANY's employees, except as set forth on Schedule 5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty
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due to the Internal Revenue Service nor any liability to the Pension Benefit
Guaranty Corporation (other than for payment in the ordinary course).
Furthermore:
(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental
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approvals set forth on Schedules 5.12 and 5.13, and is not in violation in any
material respect of any of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and
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statements of deficiencies assessed against or agreed to by, such Acquired
Party since January 1, 1991.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any
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similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
(xviii) Since January 1, 1997, the COMPANY at all times was an "S"
Corporation within the meaning of Section 1361 of the Code and, if
applicable, under the laws of the State of Texas.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a)
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the rights and benefits of the COMPANY under the Material Documents will not be
materially and adversely affected by the transactions contemplated hereby and
(b) the execution of this Agreement and the performance by the COMPANY and the
STOCKHOLDERS of their obligations hereunder and the consummation by the COMPANY
and the STOCKHOLDERS of the transactions contemplated hereby will not result in
any violation or breach of, or constitute a default under, any of the terms or
provisions of the Material Documents or the Charter Documents. Except as set
forth on Schedule 5.23, none of the Material Documents requires notice to, or
the consent or approval of, any governmental agency or other third party with
respect to any of the transactions contemplated hereby in order to remain in
full force and effect and consummation of the transactions contemplated hereby
will not give rise to any right to termination, cancellation or acceleration or
loss of any right or benefit. Except as set forth on Schedule 5.23, none of the
Material Documents prohibits the use or publication by the COMPANY, HOLDING or
NEWCO of the name of any other party to such Material Document, and none of the
Material Documents prohibits or restricts the COMPANY from freely providing
services to any other customer or potential customer of the COMPANY, HOLDING,
NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
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(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
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5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice
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of such fact or circumstance to HOLDING. However, subject to the provisions of
Section 7.8, such notification shall not relieve either the COMPANY or the
STOCKHOLDERS of their respective obligations under this Agreement, and, subject
to the provisions of Section 7.8, at the sole option of HOLDING, the truth and
accuracy of any and all warranties and representations of the COMPANY or on
behalf of the COMPANY and of the STOCKHOLDERS, in each case at the date of this
Agreement and on the Pre-Closing Date and on the Closing Date, shall be a
precondition to the consummation of this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither HOLDING nor any of its shareholders, officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person or entity
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent
to the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that
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such STOCKHOLDER has or may have had, other than rights of such STOCKHOLDER to
acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any option granted
by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of the COMPANY or has any material claim whatsoever against or owes any
amount to the COMPANY, except for claims in the ordinary course of business such
as for accrued vacation pay and accrued benefits under employee benefit plans.
"Family Member" as it applies to any person shall mean all relatives and their
spouses in a relationship of first cousin or closer to such person or such
person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired
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solely for its own account, for investment purposes only, and with no present
intention of distributing, selling or otherwise disposing of the HOLDING Stock
in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those STOCKHOLDERS
that are trusts, its trustee or trustees) is capable of evaluating the merits
and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
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(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY CORPORATION
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
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forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and
NEWCO in compliance with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
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6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet as of
December 31, 1997 presents fairly the financial position of HOLDING as of such
date, and such Statements of Income, Cash Flows and Retained Earnings present
fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
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(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
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HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other
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Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group.
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No issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that
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could give rise to an adjustment under Section 481 of the Code for periods
after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
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business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
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(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or
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desirable for the conduct of the business of the COMPANY, (2) (A) liens
for taxes either not yet due or being contested in good faith and by
appropriate proceedings (and for which adequate reserves have been
established and are being maintained) or (B) materialmen's, mechanics',
workers', repairmen's, employees' or other like liens arising in the
ordinary course of business consistent with past practice (the liens set
forth in clause (2) being referred to herein as "Statutory Liens"), or (3)
liens set forth on Schedule 5.10 or 5.15 hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under
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applicable collective bargaining agreements. Promptly following delivery of such
notice, the COMPANY shall provide HOLDING with a copy of such required notice,
as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such termination agreements is set
forth on Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS
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that constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless HOLDING and a majority of the Founding
Companies other than the COMPANY consent to such amendment or supplement; and no
amendment or supplement to a Schedule prepared by HOLDING or NEWCO that
constitutes or reflects an event or occurrence that would have a Material
Adverse Effect may be made unless a majority of the Founding Companies consent
to such amendment or supplement. In the event that one of the Other Founding
Companies seeks to amend or supplement a Schedule pursuant to Section 7.8 of one
of the Other Agreements, and such amendment or supplement constitutes or
reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to such
amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed
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in bad faith, such party shall pay or reimburse HOLDING and NEWCO or the COMPANY
and the STOCKHOLDERS, as the case may be, for all of the legal, accounting and
other out of pocket costs reasonably incurred in connection with this Agreement
and the IPO as it relates to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein)
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and (b) except as noted in such financial statements, all of such financial
statements present fairly in all material respects the financial position of the
COMPANY as of the dates indicated thereon and the results of operations and cash
flows of the COMPANY for the periods indicated thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case
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may be; and certificates to the foregoing effect dated each of the Pre-Closing
Date and the Closing Date and signed by the President or any Vice President of
HOLDING shall have been delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in
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all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to HOLDING certificates dated the Pre-Closing
Date and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
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9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date), substantially in the form annexed hereto as Annex VII,
and covering matters customary under the circumstances or covering such
additional matters as the Underwriters may reasonably request, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
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9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by HOLDING. In the event that HOLDING
cannot obtain such releases from the lenders of any such guaranteed indebtedness
on or prior to the 90th day subsequent to the Closing Date, HOLDING shall pay
off or otherwise refinance or retire such indebtedness and, if HOLDING cannot
obtain such releases on or prior to the Closing Date, then HOLDING agrees to
indemnify the STOCKHOLDERS against any and all claims made against them by the
beneficiaries of such guarantees which arise as a result of HOLDING's failure to
cause such guarantees to be released on or prior to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
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10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions. Notwithstanding the foregoing, on or following the
Closing Date, HOLDING may require that the COMPANY freeze or terminate any
defined benefit pension plans in effect at the COMPANY at any time, subject to
applicable laws, and HOLDING shall have no obligation to provide replacement
defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed,
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(ii) any breach on the part of the STOCKHOLDERS or the COMPANY of any agreement
under this Agreement, (iii) any liability under the 1933 Act, the 1934 Act or
other Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to the COMPANY or the STOCKHOLDERS, and provided in
writing to HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for
inclusion in the Registration Statement or any prospectus forming a part
thereof, or any amendment thereof or supplement thereto, or (2) arising out of
or based upon any omission or alleged omission to state therein a material fact
relating to the COMPANY or the STOCKHOLDERS required to be stated therein or
necessary to make the statements therein not misleading and not provided to
HOLDING or its counsel by the COMPANY or its STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, (iv) the matters described on Schedule
11.1(iv), (v) any Tax relating to a period ending on or before the Closing Date
(or any portion of a period ending after the Closing Date that relates to the
portion of such period ending on the Closing Date, using the closing of the
books method) that has not been paid on or before the Closing Date, or (vi) any
Tax imposed upon or relating to any third party for a pre-Closing Date period,
including, in each case, any such Tax for which an Acquired Party may be liable
under Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local of foreign law), as a transferee or successor, by contract or
otherwise, provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii), such indemnity shall not inure to the benefit of
HOLDING, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to HOLDING's counsel and to HOLDING
for inclusion in the final prospectus, and such information was not so included
or properly delivered, and (B) that each STOCKHOLDER shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by
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reason of such liabilities); (iv) any liability under the 1933 Act, the 1934 Act
or other Federal or state law or regulation, at common law or otherwise, either
(1) arising out of or based upon any untrue statement or alleged untrue
statement of a material fact relating to HOLDING or NEWCO included in any
preliminary prospectus, the Registration Statement or any prospectus forming a
part thereof, or any amendment thereof or supplement thereto, or (2) arising out
of or based upon any omission or alleged omission to state therein a material
fact relating to HOLDING or NEWCO required to be stated therein or necessary to
make the statements therein not misleading or (v) the matters described on
Schedule 11.2(v).
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters
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related to the claim, and the Indemnified Party refuses to consent to such
settlement, then the Indemnifying Party's liability under this Section with
respect to such Third Person claim shall be limited to the amount so offered in
settlement to said Third Person, and the Indemnifying Party, upon payment of
such settlement amount to such Third Person, shall be deemed released from any
and all obligation or liability with respect thereto and the Indemnified Party
shall reimburse the Indemnifying Party for any additional costs of defense that
the Indemnifying Party subsequently incurs with respect to such claims and all
additional costs of settlement or judgment. If the Indemnifying Party does not
undertake to defend such matter to which the Indemnified Party is entitled to
indemnification hereunder, or fails diligently to pursue such defense, the
Indemnified Party may undertake such defense through counsel of its choice, at
the cost and expense of the Indemnifying Party, and the Indemnified Party may
settle such matter, and the Indemnifying Party shall reimburse the Indemnified
Party for the amount paid in such settlement and any other liabilities or
expenses incurred by the Indemnified Party in connection therewith, provided,
however, that under no circumstances shall the Indemnified Party settle any
Third Person claim without the written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. All settlements hereunder
shall effect a complete release of the Indemnified Party, unless the Indemnified
Party otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any tax benefits or detriments and any insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
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STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this Section 11 if and to the extent that such
person's claim for indemnification is directly or indirectly related to a breach
by such person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the
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observance or in the due and timely performance of any of the covenants,
agreements or conditions contained herein, and the curing of such default shall
not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
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(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including
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the subsidiaries thereof), whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by HOLDING of such covenants.
It is specifically agreed that the period of four (4) years stated at the
beginning of this Section 13, during which the agreements and covenants of each
STOCKHOLDER made in this Section 13 shall be effective, shall be computed by
excluding from such computation any time during which such STOCKHOLDER is in
violation of any provision of this Section 13. The covenants contained in
Section 13 shall not be affected by any breach of any other provision hereof by
any party hereto and shall have no effect if the transactions contemplated by
this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
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information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock
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received by the STOCKHOLDER pursuant to the terms hereof or (b) any interest
(including, without limitation, an option to buy or sell) in any such shares of
HOLDING Stock, in whole or in part, and no such attempted Transfer shall be
treated as effective for any purpose; or (ii) engage in any transaction, whether
or not with respect to any shares of HOLDING Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of HOLDING
Stock acquired pursuant hereto (including, by way of example and not limitation,
engaging in put, call, short-sale, straddle or similar market transactions);
provided, that from and after the 24th month following the Closing Date, the
STOCKHOLDER shall be entitled to make such a Transfer of up to 50% of the number
shares of HOLDING Stock received by the STOCKHOLDER pursuant to the terms
hereof; and, provided, further, that from and after the 30th month following the
Closing Date, the STOCKHOLDER shall be entitled to make such a Transfer of up to
75% of the number shares of HOLDING Stock received by the STOCKHOLDER pursuant
to the terms hereof. Notwithstanding the foregoing, (x) the STOCKHOLDER may
Transfer shares of HOLDING Stock to immediate family members (or trusts for the
benefit of the STOCKHOLDER or family members, the trustees of which so agree)
(such family members and trusts are referred to herein as "Permitted
Transferees"); provided, that the family member, trust, trustee, pledgee or
other beneficiary of such Transfer, encumbrance or pledge, as the case my be,
agrees in writing prior to such transaction to be bound by (1) the provisions of
this Section as if a STOCKHOLDER and party hereto and (2) the indemnification
provisions set forth in this Agreement as if a STOCKHOLDER and party hereto; and
(y) the STOCKHOLDER may encumber or pledge any of such shares of HOLDING Stock.
The certificates evidencing the HOLDING Stock delivered to the STOCKHOLDER
pursuant to Section 3 of this Agreement will bear a legend substantially in the
form set forth below and containing such other information as HOLDING may deem
necessary or appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
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16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be included
in such registration all of the HOLDING Stock issued to the STOCKHOLDERS
pursuant to this Agreement or transferred to such Permitted Transferees which
any such STOCKHOLDER or Permitted Transferee requests be included in such
registration, provided that HOLDING shall have the right to reduce the number of
shares to be included by the STOCKHOLDER in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to HOLDING
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if the proposed offering is a firm commitment
underwritten offering and HOLDING is advised in writing in good faith by any
managing underwriter of the securities being offered that the number of shares
to be included in such registration is greater than the number of such shares
which can be offered without adversely affecting the offering, HOLDING may
reduce pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request,
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HOLDING shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that
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if HOLDING or the managing underwriter for such offering requires that a
STOCKHOLDER refrain from selling shares at any time during the offering, then
such 120-day period shall be extended for the period of time equal to the period
for which the STOCKHOLDER was required to refrain from selling shares; (ii) use
its best efforts to register and qualify the HOLDING Stock covered by such
registration statement under applicable state securities laws as the holders
shall reasonably request for the distribution of the HOLDING Stock; and (iii)
take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of HOLDING's size and investment stature,
including reasonable and customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as
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the "Proposed Transaction"). The parties to this Agreement hereby make the
following representations and warranties and acknowledge that such
representations and warranties are for the benefit of and will be relied upon by
Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have run for all tax
periods ended on or prior to or which include the Closing Date, which shall be
deemed to be the Expiration Date for purposes of this Section 17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
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(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have run for all tax periods ended on or
prior to or which include the Closing Date, which shall be deemed to be the
Expiration Date for purposes of this Section 17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as "HOLDERS") and the purchasers of
the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that
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such HOLDER surrenders pursuant to this Agreement or the Other Agreements as the
case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
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18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
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18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
67
<PAGE>
<PAGE>
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Brandt Mechanical Services, Inc.
11245 Indian Trail
Dallas, Texas 75229
Facsimile No.: (972) 484-6013
Attn: Mark Zilbermann
and marked "Personal and Confidential"
with copies to:
Hughes & Luce LLP
1717 Main Street
Dallas, TX 75201
Facsimile No.: (214) 939-5849
Attn: Ron Kerridge, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Texas shall be governed thereby, in each case without reference to its
conflicts of law provisions.
68
<PAGE>
<PAGE>
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Mark Zilbermann (hereinafter
referred to
69
<PAGE>
<PAGE>
as the "STOCKHOLDER Representative") as their representative for purposes of all
amendments, consents and waivers under this Agreement and for purposes of taking
actions on behalf of the STOCKHOLDERS pursuant to Section 11 and as
attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with authority
to take any and all actions and make any and all decisions required or permitted
to be taken or made by them with respect to such amendments, consents, waivers
and actions under Section 11 (including, without limitation, the settling of
claims pursuant to Section 11). The STOCKHOLDER Representative shall have and is
hereby granted by the STOCKHOLDERS full power and authority as agent of
STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any other matters concerning the transactions contemplated by
this Agreement, both before and after the Closing, and all action taken by the
STOCKHOLDER Representative hereunder shall be binding upon all of the
STOCKHOLDERS, and their respective successors, heirs, representatives and
assigns as if expressly confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
[signature page to follow]
70
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
--------------------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
BRANDT ACQUISITION CORP.
By: /s/ William M. Dillard
--------------------------------------
Name: William M. Dillard
Title: President
BRANDT MECHANICAL SERVICES, INC.
By: /s/ Mark Zilbermann
--------------------------------------
Name: Mark Zilbermann
Title: President
STOCKHOLDERS:
/s/ Michael Wyner
------------------------------------
Michael Wyner
/s/ William McCauley
------------------------------------
William McCauley
/s/ Philip Archilla
------------------------------------
Philip Archilla
/s/ Arnold Picon
------------------------------------
Arnold Picon
/s/ Ronald Schreiber
------------------------------------
Ronald Schreiber
/s/ Mark Zilbermann
------------------------------------
Mark Zilbermann
/s/ Barry Moore
------------------------------------
Barry Moore
/s/ Craig Reynolds
------------------------------------
Craig Reynolds
/s/ Karen Reynolds
------------------------------------
Karen Reynolds
/s/ Jean Reynolds
------------------------------------
Jean Reynolds
71
<PAGE>
<PAGE>
STOCKHOLDERS (cont'd)
/s/ Paige Reynolds
------------------------------------
Paige Reynolds
/s/ Tracy Culberson
------------------------------------
Tracy Culberson
/s/ Janell Peacock
------------------------------------
Janell Peacock
/s/ Jerry Rawlinson
------------------------------------
Jerry Rawlinson
CARSON E. MOORE TRUST
By: /s/ Edward Job
---------------------------------
Name: Edward Job
Title: Trustee
DOUGLAS ZILBERMANN 1997 TRUST
By: /s/ Pat Zilbermann
---------------------------------
Name: Pat Zilbermann
Title: Trustee
AARON ZILBERMANN 1997 TRUST
By: /s/ Pat Zilbermann
---------------------------------
Name: Pat Zilbermann
Title: Trustee
SYDNEY E. MOORE TRUST
By: /s/ Edward Job
---------------------------------
Name: Edward Job
Title: Trustee
72
<PAGE>
<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $12,393,179 and 1,523,171 shares of Common
Stock of HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------- ----------------
<S> <C> <C>
Mark Zilbermann 556,503 $4,637,522
A. Zilbermann 1997 Trust 8,997 -
D. Zilbermann 1997 Trust 8,997 -
Barry Moore 556,503 4,637,522
Carson E. Moore Trust 8,997 -
Sydney E. Moore Trust 8,997 -
Craig Reynolds 241,404 2,011,700
Karen Reynolds 9,053 75,439
Jean Reynolds 9,053 75,439
Paige Reynolds 9,053 75,439
Tracy Culberson 9,053 75,439
Janell Peacock 6,035 50,293
J. Rawlinson 15,088 125,731
M. Wyner 15,088 125,731
W. McCauley 15,088 125,731
P. Archilla 15,088 125,731
A. Picon 15,088 125,731
R. Schreiber 15,088 125,731
------ -------
TOTALS: 1,523,171 $12,393,179
</TABLE>
MINIMUM VALUE: $29,148,060 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share) plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 991,454 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this
<PAGE>
<PAGE>
footnote, each STOCKHOLDERS pro rata portion shall based on the minimum cash
payable to such STOCKHOLDER relative to the minimum cash payable to all
STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33 (the current ratio being defined as
the ratio of current assets after withdrawal of all cash included in such
payment to current liabilities), (2) does not cause the COMPANY to have a debt
to equity ratio of greater than 2.25 and (3) does not have debt in excess of the
average total debt outstanding of the COMPANY during the two-year period
preceding the Balance Sheet Date. The payment of such amount to the STOCKHOLDERS
shall be made to the STOCKHOLDERS, pro rata, in accordance with their respective
percentage ownership interests in the COMPANY immediately prior to the Merger.
Prior to making any such payment to the STOCKHOLDERS, the COMPANY shall have the
amount of such payment approved by HOLDING and, to the extent payment of such
amount exceeds available cash as of the Closing Date (a "Shortfall"), HOLDING
shall cause the COMPANY to make such payment to the STOCKHOLDERS in accordance
with HOLDING'S instructions (which may require that the COMPANY draw on its line
of credit to the extent of the Shortfall or receive funds from HOLDING to the
extent of the Shortfall).
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
ESI ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
ENERGY SYSTEMS INDUSTRIES, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, HOLDING and NEWCO.......................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING...........................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................11
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........12
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................13
5.9 Financial Statements............................................13
5.10 Liabilities and Obligations.....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................15
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......17
5.16 Real Property...................................................17
5.17 Insurance.......................................................18
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................19
5.20 Compliance with ERISA...........................................20
5.21 Conformity with Law; Litigation.................................21
</TABLE>
-i-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
5.22 Taxes...........................................................21
5.23 No Violations...................................................24
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................26
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................27
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................28
5.32 Preemptive Rights...............................................28
5.33 Transactions with Directors, Officers and Affiliates............28
5.34 Securities Act Representations..................................29
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........32
6.5 Subsidiaries....................................................32
6.6 Financial Statements............................................32
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................35
6.13 Business; Real Property; Material Agreements....................35
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................38
7.1 Access and Cooperation; Due Diligence...........................38
7.2 Conduct of Business Pending Closing.............................39
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................41
7.5 Notice to Bargaining Agents.....................................41
7.6 Agreements......................................................41
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................42
7.9 Cooperation in Preparation of Registration Statement............43
7.10 Final Financial Statements......................................44
</TABLE>
-ii-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
7.11 Further Assurances..............................................44
7.12 Authorized Capital..............................................44
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................45
8.2 Performance of Obligations......................................45
8.3 No Litigation...................................................45
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................46
8.8 No Material Adverse Change......................................46
8.9 Closing of IPO..................................................46
8.10 Secretary's Certificate.........................................46
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................47
9.1 Representations and Warranties..................................47
9.2 Performance of Obligations......................................47
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................48
9.6 STOCKHOLDERS' Release...........................................48
9.7 Termination of Related Party Agreements.........................48
9.8 Opinion of Counsel..............................................48
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................49
9.12 Employment Agreements...........................................49
9.13 Closing of IPO..................................................49
9.14 FIRPTA Certificate..............................................49
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............49
10.1 Release From Guarantees; Repayment of Certain Obligations.......49
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................50
10.4 Preservation of Employee Benefit Plans..........................50
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................51
</TABLE>
-iii-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................51
11.1 General Indemnification by the STOCKHOLDERS.....................51
11.2 Indemnification by HOLDING......................................52
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................54
11.5 Limitations on Indemnification..................................54
12. TERMINATION OF AGREEMENT..............................................55
12.1 Termination.....................................................55
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................56
13.1 Prohibited Activities...........................................56
13.2 Damages.........................................................57
13.3 Reasonable Restraint............................................57
13.4 Severability; Reformation.......................................57
13.5 Independent Covenant............................................57
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................58
14.1 STOCKHOLDERS....................................................58
14.2 HOLDING and NEWCO...............................................58
14.3 Damages.........................................................59
14.4 Survival........................................................59
15. TRANSFER RESTRICTIONS.................................................59
15.1 Transfer Restrictions...........................................59
16. REGISTRATION RIGHTS...................................................60
16.1 Piggyback Registration Rights...................................60
16.2 Demand Registration Rights......................................61
16.3 Registration Procedures.........................................62
16.4 Underwriting Agreement..........................................62
16.5 Availability of Rule 144........................................63
16.6 Market Standoff.................................................63
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................63
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS....................................................63
17.2 Representations and Warranties of the STOCKHOLDERS..............64
17.3 Representations and Warranties of HOLDING and NEWCO.............65
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
18. GENERAL...............................................................66
18.1 Cooperation.....................................................66
18.2 Successors and Assigns..........................................67
18.3 Entire Agreement................................................67
18.4 Counterparts....................................................67
18.5 Brokers and Agents..............................................67
18.6 Expenses........................................................67
18.7 Notices.........................................................68
18.8 Governing Law...................................................69
18.9 Exercise of Rights and Remedies.................................69
18.10 Time............................................................69
18.11 Reformation and Severability....................................70
18.12 Remedies Cumulative.............................................70
18.13 Captions........................................................70
18.14 Amendments and Waivers..........................................70
18.15 Survival of Representations and Warranties......................70
18.16 STOCKHOLDER Representative......................................70
</TABLE>
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<PAGE>
<PAGE>
LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
-vi-
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), ESI ACQUISITION
CORP., a Delaware corporation ("NEWCO"), ENERGY SYSTEMS INDUSTRIES, INC., a
Massachusetts corporation (the "COMPANY"), and Robert C. Ritchie, Clifford R.
Patterson, Anthony I. Shaker, A&S Shaker Nominee Trust, Sandra Shaker Revocable
Trust dated June 30, 1997, Energy Systems Industries, Inc. Stock Sharing Trust,
Anthony Erbetta Trust, Ronald C. Erbetta and Sandra F. Erbetta Family Trust
dated March 2, 1988 and Gail A. Doyle Revocable Trust dated December 12, 1994
(the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the State of Delaware and the Commonwealth of Massachusetts;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, New England Mechanical Services,
Inc., Lee Company, Hill York Corporation, Hill York Service Corporation and
Mechanical Services of Orlando, Inc. (collectively, the "Other Founding
Companies") and their respective stockholders in order to acquire additional
providers of commercial and industrial heating, ventilation, air conditioning,
energy and environmental services (the COMPANY, together with each of the Other
Founding Companies, are collectively referred to herein as the "Founding
Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
<PAGE>
<PAGE>
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of HOLDING and NEWCO have approved this Agreement and the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
2
<PAGE>
<PAGE>
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
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"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and The Commonwealth of Massachusetts.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto
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contemplate that the Pricing shall take place on or immediately prior to
the Pre-Closing Date.
"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
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"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of The Commonwealth of Massachusetts and stamped
receipt copies of each such filing to be delivered to HOLDING on or before the
Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Articles of Organization of the COMPANY then in effect shall
be the Articles of Organization of the Surviving Corporation until changed
as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of The Commonwealth of Massachusetts and of the
Articles of Organization and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the Articles
of Organization and By-Laws of the Surviving Corporation, until his or her
successor is duly elected and qualified.
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1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
HOLDING and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of The Commonwealth of Massachusetts. Except as herein specifically set
forth, the identity, existence, purposes, powers, objects, franchises,
privileges, rights and immunities of the COMPANY shall continue unaffected and
unimpaired by the Merger and the corporate franchises, existence and rights of
NEWCO shall be merged with and into the COMPANY, and the COMPANY, as the
Surviving Corporation, shall be fully vested therewith. At the Effective Time of
the Merger, the separate existence of NEWCO shall cease and, in accordance with
the terms of this Agreement, the Surviving Corporation shall possess all the
rights, privileges, immunities and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or
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enlarged by the Merger, and all debts, liabilities and duties of the COMPANY and
NEWCO shall attach to the Surviving Corporation and may be enforced against the
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock consisting of common stock
issued and outstanding immediately prior to the Effective Time of the
Merger, by virtue of the Merger and without any further action on the part
of the holder thereof, automatically shall be deemed to represent, with
respect to each STOCKHOLDER, (1) the right to receive the number of shares
of HOLDING Stock to be set forth on Annex III hereto promptly following
execution hereof with respect to such STOCKHOLDER and (2) the right to
receive the amount of cash to be set forth on Annex III hereto promptly
following execution hereof with respect to such STOCKHOLDER, which number
of shares and amount of cash shall reflect the written election of each
STOCKHOLDER as of the date hereof;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor;
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger; and
(iv) all of the shares of preferred stock of the COMPANY
automatically shall be deemed to represent, with respect to each
STOCKHOLDER owning such shares, the right to receive the amount of cash
set forth on Annex III hereto with respect to such STOCKHOLDER.
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All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, in
accordance with their respective elections theretofore executed and upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case to be set forth on Annex
III hereto promptly following execution hereof with respect to such STOCKHOLDER.
The cash payable pursuant to clause (ii) shall be paid by wire transfer to an
account designated by each STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust, subject to an escrow
agreement in form and content reasonably acceptable to STOCKHOLDERS, to Morgan,
Lewis & Bockius LLP, counsel to HOLDING, at the Pre-Closing the certificates
representing COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or
accompanied by stock powers duly endorsed in blank, with signatures guaranteed
by a national or state chartered bank or other financial institution, and with
all necessary Transfer Tax and other revenue stamps, acquired at the
STOCKHOLDERS' expense, affixed and canceled. To the extent reasonably required,
the STOCKHOLDERS agree promptly to cure any deficiencies with respect to the
endorsement of the stock certificates or other documents of conveyance with
respect to such COMPANY Stock or with respect to the stock powers accompanying
any COMPANY Stock. Upon consummation of the IPO and the transactions
contemplated to occur on the Closing Date (including, without limitation, the
tender to each STOCKHOLDER (or to its agent) of the shares and cash to be set
forth on Annex III hereto promptly following execution hereof), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
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4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the delivery to an agent of
HOLDING of the Articles of Merger for filing at the Effective Time of the
Merger, which agent shall execute an escrow agreement in form and content
reasonably acceptable to the COMPANY) and (ii) effect the conversion and
delivery of shares referred to in Section 3 hereof; provided, that such actions
shall not include the actual completion of the Merger for purposes of this
Agreement or the conversion and delivery of the shares and transmission of funds
by wire referred to in Section 3 hereof, each of which actions shall only be
taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
The Commonwealth of Massachusetts in order to withdraw the Certificate of Merger
to the extent previously filed and rescind any merger or other actions effected
by any advance filing of the Articles of Merger as described in this Section.
The taking of the actions described in clauses (i) and (ii) above (the
"Pre-Closing") shall take place on the Pre-Closing date (the "Pre-Closing Date")
at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New York, New
York 10178. On the Closing Date (x) the Articles of Merger shall be or shall
have been filed with the appropriate state authorities so that they shall be or,
as of 8:00 a.m. New York City time on the Closing Date, shall become effective
and the Merger shall thereby be effected, (y) all transactions contemplated by
this Agreement, including the conversion and delivery of shares, the
transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall occur and (z) the closing with
respect to the IPO shall occur and be deemed to be completed. The date on which
the actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." During the period from the Pre-Closing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22
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hereof shall survive until such time as the statute of limitations period has
run for all tax periods ended on, prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for Section 5.22, and (ii)
solely for purposes of Section 11.1(iii) hereof and solely to the extent that,
in connection with the IPO, HOLDING actually incurs liability under the 1933
Act, the 1934 Act or any other Federal or state securities laws, the
representations and warranties set forth herein shall survive until the
expiration of any applicable statute of limitations period, which shall be
deemed to be the Expiration Date for such purposes. For purposes of this Section
5, the term "COMPANY" shall mean and refer to the COMPANY and all of its
subsidiaries, if any, unless the context specifically requires otherwise.
Notwithstanding the foregoing, no representations and warranties in Section 5.1
through 5.30, the fourth through seventh sentences of Section 5.33 or in Section
5.35 are made by any of the STOCKHOLDERS listed on Schedule 5(A), which
includes: (i) those STOCKHOLDERS who beneficially own less than 3% of the
COMPANY's outstanding common stock, (ii) those STOCKHOLDERS who only hold shares
of the Company's outstanding preferred stock and (iii) the Energy Systems
Industries, Inc. Stock Sharing Trust.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as set
forth on Schedule 5.1 or (ii) where the failure to be so authorized or qualified
would not have a material adverse effect on the business, operations, affairs,
prospects, properties, assets or condition (financial or otherwise) of the
COMPANY (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete, correct and certified copies of the Articles of Organization and
By-laws, each as amended, of the COMPANY (the "Charter Documents") are all
attached to Schedule 5.1. The minute books and stock records of the COMPANY, as
heretofore made available to HOLDING, are correct and complete in all material
respects. The most recent minutes of the COMPANY, which are dated no earlier
than ten business days prior to the date hereof, affirm and ratify all prior
acts of the COMPANY and of its officers and directors on behalf of the COMPANY
to the extent any such acts are of a nature that require action by or the
approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital
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stock of the COMPANY are owned by the STOCKHOLDERS in the amounts set forth in
Annex IV. Except as set forth on Schedule 5.3, all of the issued and outstanding
shares of capital stock of the COMPANY have been duly authorized and validly
issued, are fully paid and nonassessable, are owned of record and beneficially
by the STOCKHOLDERS and were offered, issued, sold and delivered by the COMPANY
in compliance with all applicable state and Federal laws concerning the issuance
of securities. Further, none of such shares were issued in violation of the
preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's stock and a
description of the material terms of such outstanding options, warrants or other
rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
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5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
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(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities were incurred thereafter in the
ordinary course of business consistent with past practice and are not material
either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
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5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the COMPANY has delivered to HOLDING an accurate list and
summary description (which is set forth on Schedule 5.12(b)) of all such
licenses, franchises, permits and other governmental authorizations held the
Company, including all permits, titles, licenses, franchises and certificates
(it being understood and agreed that a list of all environmental permits and
other environmental approvals required to be identified under this Agreement is
set forth on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12(b) and 5.13 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12(b) and
5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not result in the infringement by the
COMPANY of any Intellectual Property right of any other person or entity or the
infringement of any Intellectual Property listed on Schedule 5.12(a), or result
in a default under or a breach or violation of, or materially and adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.12(b) or
Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
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including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) the COMPANY has no material contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
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5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or agreements listed
on Schedule 5.15, and no notice of default under any such contract or agreement
has been received by the COMPANY or any of the STOCKHOLDERS. The COMPANY has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
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(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
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Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY does not currently maintain or contribute, and has not in the past three
years maintained or contributed, to any employee pension benefit plan other than
the plans set forth on Schedule 5.19, nor is the COMPANY required to contribute
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions of employment of any of the
COMPANY's employees, except as set forth on Schedule 5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
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All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any
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time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
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(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
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(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on
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minimum, environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatsoever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
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(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
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(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
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5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither HOLDING nor any of its shareholders, officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person or entity
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent
to the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
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(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of
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the COMPANY or has any material claim whatsoever against or owes any amount to
the COMPANY, except for claims in the ordinary course of business such as for
accrued vacation pay and accrued benefits under employee benefit plans. "Family
Member" as it applies to any person shall mean all relatives and their spouses
in a relationship of first cousin or closer to such person or such person's
spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and except for distributions
to beneficiaries of the Energy Systems Industries, Inc. Stock Sharing Trust
permitted by applicable law in connection with the dissolution of such Trust,
with no present intention of distributing, selling or otherwise disposing of the
HOLDING Stock in connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those STOCKHOLDERS
that are trusts, its trustee or trustees) is capable of evaluating the merits
and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
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(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY CORPORATION
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING.
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However, subject to the provisions of Section 7.8, such notification shall not
relieve the STOCKHOLDER of its obligations under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold
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and delivered by HOLDING and NEWCO in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet as of
December 31, 1997 presents fairly the financial position of HOLDING as of such
date, and such Statements of Income, Cash Flows and Retained Earnings present
fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
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(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
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jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally
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issued shares of HOLDING, fully paid and nonassessable, and with the exception
of restrictions upon resale set forth in Section 15 hereof, will be identical in
all material and substantive respects to the HOLDING Stock issued and
outstanding as of the date hereof by reason of the provisions of the Delaware
GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS pursuant to
this Agreement will not be registered under the 1933 Act, except as provided in
Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
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(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8)
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of the Internal Revenue Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460 of
the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
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warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
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7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Certificate of Organization or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
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(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
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7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
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7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to such
amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent
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(or are not deemed to have consented) to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER (other than the Stockholders listed on Schedule 5(A)) represents and
warrants, as to such information with respect to the COMPANY and himself or
herself, that the Registration Statement at its effective date, at the date of
the Final Prospectus (as defined in the Underwriting Agreement), the Preliminary
Prospectus (as defined in the Underwriting Agreement), and each amendment to the
Registration Statement, and at each closing date with respect to the IPO under
the Underwriting Agreement (including with respect to any over-allotment option)
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
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7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty
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for all purposes of this Agreement except with respect to the fraud or
intentional misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
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8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
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9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to HOLDING certificates dated the Pre-Closing
Date and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Articles of Organization (including amendments
thereto), By-Laws (including amendments
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thereto), and resolutions of the board of directors and the STOCKHOLDERS
approving the COMPANY's entering into this Agreement and the consummation of the
transactions contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date), substantially in the form annexed hereto as Annex VII,
and covering matters customary under the circumstances or covering such
additional matters as the Underwriters may reasonably request, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if
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applicable, that all state franchise and/or income tax returns and taxes for the
COMPANY for all periods prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by HOLDING. In the event that HOLDING
cannot obtain such releases from the lenders of any such guaranteed indebtedness
on or prior to the 90th day subsequent to the Closing Date, HOLDING shall pay
off or otherwise refinance or retire such indebtedness and, if HOLDING cannot
obtain such releases on or prior to the Closing Date, then HOLDING agrees to
indemnify the STOCKHOLDERS against any and all claims made against them by the
beneficiaries of such guarantees which arise as a result of HOLDING's failure to
cause such guarantees to be released on or prior to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts
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already paid with respect thereto or properly accrued or reserved with respect
thereto on the COMPANY Financial Statements) shown by such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions. Notwithstanding the foregoing, on or following the
Closing Date, HOLDING may require that the COMPANY freeze or terminate any
defined benefit pension plans in effect at the COMPANY at any time, subject to
applicable laws, and HOLDING shall have no obligation to provide replacement
defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
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10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS listed
on Schedule 11.1 covenant and agree that they, jointly and severally, will
indemnify, defend, protect and hold harmless HOLDING, NEWCO, the COMPANY and the
Surviving Corporation in amounts not to exceed the respective amounts set forth
next to each STOCKHOLDER's name on Schedule 11.1, at all times, from and after
the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, (iv) the matters described on Schedule 11.1(iv), (v) any Tax (in excess
of all amounts accrued therefor on the Balance Sheet included in the COMPANY
Financial Statements) relating to a period ending on or before the Closing Date
(or any portion of a period ending after the Closing Date that relates to the
portion of such period ending on the Closing Date, using the closing of the
books method) that has not been paid on or before the Closing Date, or (vi) any
Tax imposed upon or relating to any third party for a pre-Closing Date period,
including, in each case, any such Tax for which an Acquired Party may be liable
under Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local of foreign law), as a transferee or successor,
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by contract or otherwise, provided, however, (A) that in the case of any
indemnity arising pursuant to clause (iii), such indemnity shall not inure to
the benefit of HOLDING, NEWCO, the COMPANY or the Surviving Corporation to the
extent that such untrue statement (or alleged untrue statement) was made in, or
omission (or alleged omission) occurred in, any preliminary prospectus and the
STOCKHOLDERS provided, in writing, corrected information to HOLDING's counsel
and to HOLDING for inclusion in the final prospectus, and such information was
not so included or properly delivered, and (B) that each STOCKHOLDER other than
the Energy Systems Industries, Inc. Stock Sharing Trust shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount
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thereof. The Indemnifying Party shall have the right to defend and settle, at
its own expense and by its own counsel, any such matter so long as the
Indemnifying Party pursues the same in good faith and diligently, provided that
the Indemnifying Party shall not settle any action or proceeding without the
written consent of the Indemnified Party unless the Indemnified Party is fully
released and exonerated from all matters related to the claim. If the
Indemnifying Party undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the Indemnified Party shall
cooperate with the Indemnifying Party and its counsel in the defense thereof and
in any settlement thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books, records or
information reasonably requested by the Indemnifying Party that are in the
Indemnified Party's possession or control. All Indemnified Parties shall
endeavor to use the same counsel, which shall be the counsel selected by
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest in the opinion of such counsel that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel and experts. After
the Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The
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parties hereto will make appropriate adjustments for any tax benefits or
detriments and any insurance proceeds in determining the amount of any
indemnification obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS giving the indemnification
contemplated by this Section 11 unless, and solely to the extent that, the
aggregate of all claims which such persons and entities may have against such
STOCKHOLDERS shall exceed, in the aggregate for all such claims, 2.0% of the sum
of (i) the cash paid to STOCKHOLDERS giving the indemnification contemplated by
this Section 11 plus (ii) the value (determined in accordance with the last
paragraph of Section 11.5) of the HOLDING Stock delivered to STOCKHOLDERS giving
the indemnification contemplated by this Section 11 (the "Indemnification
Threshold"), provided, however, that except with respect to the matters
specified on Schedule 11.5, HOLDING, NEWCO, the Surviving Corporation and the
other persons or entities indemnified pursuant to Section 11.1 may assert and
shall be indemnified for any claim under Section 11.1(iv) or 11.1(v) at any
time, regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this Section 11 if and to the extent that such
person's claim for indemnification is directly or indirectly related to a breach
by such person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the
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amount set forth opposite such STOCKHOLDER's name on Schedule 11.1, provided
that a STOCKHOLDER's indemnification obligations pursuant to Section 11.1(iv) or
11.1(v) shall not be limited. Indemnity obligations hereunder may be satisfied
through the payment of cash or the delivery of HOLDING Stock, or a combination
thereof as determined by the Indemnifying Party in its sole discretion. For
purposes of calculating the value of the HOLDING Stock received or delivered by
a STOCKHOLDER (for purposes of determining the Indemnification Threshold,
limitation on indemnity set forth in the second preceding sentence and the
amount of any indemnity paid), the HOLDING Stock shall be valued at its initial
public offering price as set forth in the Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
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Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock, (ii) only owns shares of the Company's outstanding
preferred stock or is a trustee of a trust that only owns shares of the
Company's preferred stock or (iii) except for Anthony I. Shaker, is a
beneficiary of the Energy Systems Industries Inc. Stock Sharing Trust.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
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14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information
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pursuant to this clause (ii), HOLDING and NEWCO shall, if possible, give prior
written notice thereof to the COMPANY and the STOCKHOLDERS and provide the
COMPANY and the STOCKHOLDERS with the opportunity to contest such disclosure, or
(iii) the disclosing party reasonably believes that such disclosure is required
in connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by HOLDING or NEWCO of the provisions of
this Section, the COMPANY and the STOCKHOLDERS shall be entitled to an
injunction restraining HOLDING and NEWCO from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the COMPANY and the STOCKHOLDERS from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. Upon any
termination of this Agreement, HOLDING and NEWCO shall return all confidential
information of the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder or, in the case of the Energy Systems,
Inc. Stock Sharing Trust, for purposes of making distributions in connection
with its termination to its beneficiaries as permitted by applicable law, the
STOCKHOLDER shall not (i) sell, assign, exchange, transfer, encumber, pledge,
distribute, appoint or otherwise dispose (a "Transfer") of (a) any shares of
HOLDING Stock received by the STOCKHOLDER pursuant to the terms hereof or (b)
any interest (including, without limitation, an option to buy or sell) in any
such shares of HOLDING Stock, in whole or in part, and no such attempted
Transfer shall be treated as effective for any purpose; or (ii) engage in any
transaction, whether or not with respect to any shares of HOLDING Stock or any
interest therein, the intent or effect of which is to reduce the risk of owning
the shares of HOLDING Stock acquired pursuant hereto (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions); provided, that from and after the 24th month
following the Closing Date, the STOCKHOLDER shall be entitled to make such a
Transfer of up to 50% of the number shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the
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30th month following the Closing Date, the STOCKHOLDER shall be entitled to make
such a Transfer of up to 75% of the number shares of HOLDING Stock received by
the STOCKHOLDER pursuant to the terms hereof. Notwithstanding the foregoing, (x)
the STOCKHOLDER may Transfer shares of HOLDING Stock to immediate family members
(or trusts for the benefit of the STOCKHOLDER or family members, the trustees of
which so agree) (such family members and trusts are referred to herein as
"Permitted Transferees"); provided, that the family member, trust, trustee,
pledgee or other beneficiary of such Transfer, encumbrance or pledge, as the
case my be, agrees in writing prior to such transaction to be bound by (1) the
provisions of this Section as if a STOCKHOLDER and party hereto and (2) the
indemnification provisions set forth in this Agreement as if a STOCKHOLDER and
party hereto; and (y) the STOCKHOLDER may encumber or pledge any of such shares
of HOLDING Stock. The certificates evidencing the HOLDING Stock delivered to the
STOCKHOLDER pursuant to Section 3 of this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as HOLDING may deem necessary or appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be included
in such registration all of the HOLDING Stock issued to the STOCKHOLDERS
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pursuant to this Agreement or transferred to such Permitted Transferees which
any such STOCKHOLDER or Permitted Transferee requests be included in such
registration, provided that HOLDING shall have the right to reduce the number of
shares to be included by the STOCKHOLDER in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to HOLDING
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if the proposed offering is a firm commitment
underwritten offering and HOLDING is advised in writing in good faith by any
managing underwriter of the securities being offered that the number of shares
to be included in such registration is greater than the number of such shares
which can be offered without adversely affecting the offering, HOLDING may
reduce pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by each such person) to a number deemed
satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell
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shares in any such public offering) may defer the filing of the registration
statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an
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arrangement between such managing underwriters and companies of HOLDING's size
and investment stature, including reasonable and customary indemnification
provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing Date, it will not sell, transfer or otherwise dispose of,
including without limitation through put or short sale arrangements, shares of
HOLDING Stock during the period from the effective date of the registration
statement through the 90th day following the effective date of such
registration, provided, that: (i) all directors, executive officers and holders
of more than five percent of the outstanding HOLDING Stock agree to the same
restrictions; and (ii) with respect to the first public offering of shares of
HOLDING Stock within three years following the IPO, the STOCKHOLDER shall have
been afforded a meaningful opportunity to include shares in such registration
after giving effect to any reduction by reason of underwriters' advice, unless
sales by such STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have run for all tax
periods ended on or prior to or which include the Closing Date, which shall be
deemed to be the Expiration Date for purposes of this Section 17.1; provided,
that with respect to
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the STOCKHOLDERS listed on Schedule 5(A), the representations and warranties
contained in this Section 17.1 are made on a several and not joint basis.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or the
Other Agreements, as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
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(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
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obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be
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consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Energy Systems Industries, Inc.
306 Northern Avenue
P.O. Box 9022
Boston, MA 02205-9022
Facsimile No.: (617) 951-2991
Attn: Anthony I. Shaker
and marked "Personal and Confidential"
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Facsimile No.: (617) 523-1231
Attn: H. David Henken, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of The
Commonwealth of Massachusetts shall be governed thereby, in each case without
reference to its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
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18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Anthony I. Shaker (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any
70
<PAGE>
<PAGE>
other matters concerning the transactions contemplated by this Agreement, both
before and after the Closing, and all action taken by the STOCKHOLDER
Representative hereunder shall be binding upon all of the STOCKHOLDERS, and
their respective successors, heirs, representatives and assigns as if expressly
confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
[signature page to follow]
71
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
---------------------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
ESI ACQUISITION CORP.
By: /s/ William M. Dillard
---------------------------------------
Name: William M. Dillard
Title: President
ENERGY SYSTEMS INDUSTRIES, INC.
By: /s/ Anthony I. Shaker
---------------------------------------
Name: Anthony I. Shaker
Title: President
STOCKHOLDERS:
/s/ Anthony I. Shaker
------------------------------------------
Anthony I. Shaker
/s/ Clifford R. Patterson
------------------------------------------
Clifford R. Patterson
/s/ Robert C. Ritchie
------------------------------------------
Robert C. Ritchie
A&S SHAKER NOMINEE TRUST
By: /s/ Anthony I. Shaker
---------------------------------------
Name: Anthony I. Shaker
Title: Trustee
72
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<PAGE>
SANDRA SHAKER REVOCABLE TRUST,
DATED JUNE 30, 1997
By: /s/ Anthony I. Shaker
---------------------------------------
Name: Anthony I. Shaker
Title: Trustee
ENERGY SYSTEMS INDUSTRIES, INC.
STOCK SHARING TRUST
By: /s/ Anthony I. Shaker
---------------------------------------
Name: Anthony I. Shaker
Title: Trustee
ANTHONY ERBETTA TRUST
By: /s/ Anthony Erbetta
---------------------------------------
Name: Anthony Erbetta
Title: Trustee
RONALD C. ERBETTA AND SANDRA F.
ERBETTA FAMILY TRUST DATED
MARCH 2, 1988
By: /s/ Ronald C. Erbetta
---------------------------------------
Name: Ronald C. Erbetta
Title: Trustee
GAIL A. DOYLE REVOCABLE TRUST
DATED DECEMBER 12, 1994
By: /s/ Gail Doyle
---------------------------------------
Name: Gail Doyle
Title: Trustee
73
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<PAGE>
ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the holders of preferred stock
and to the STOCKHOLDERS:
Repayment of the $1,300,000 liquidation value of shares of
preferred stock and, as to the common STOCKHOLDERS only, minimum
cash*/** of $5,219,874 and 720,566 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each common STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------------------- ----------------
<S> <C> <C>
Robert Ritchie 138,796 1,156,632
Cliff Patterson 17,569 146,409
Anthony Shaker 205,853 930,597
ESI Stock Sharing Trust 358,348 2,986,235
------- ---------
TOTALS: 720,566 $5,219,874
</TABLE>
For purposes of the remainder of this Annex III, STOCKHOLDERS shall mean only
the holders of the common stock of COMPANY and not the holders of the preferred
stock of the COMPANY.
MINIMUM VALUE: $14,446,100, consisting of (A) $13,146,100 (determined by adding
(a) the product found by multiplying (i) the aggregate number of shares of
HOLDING Stock to be paid to the STOCKHOLDERS by (ii) $11.00 per share plus (b)
the aggregate amount of minimum cash to be paid to the STOCKHOLDERS as
specified in the table above) and (B) $1,300,000 in cash to pay the
liquidation value of shares of preferred stock.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 513,886 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
<PAGE>
<PAGE>
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33 (the current ratio being defined as
the ratio of current assets after withdrawal of all cash included in such
payment to current liabilities), (2) does not cause the COMPANY to have a debt
to equity ratio of greater than 2.25 and (3) does not have debt in excess of the
average total debt outstanding of the COMPANY during the two-year period
preceding the Balance Sheet Date. The payment of such amount to the STOCKHOLDERS
shall be made to the STOCKHOLDERS, pro rata, in accordance with their respective
percentage ownership interests in the COMPANY immediately prior to the Merger.
Prior to making any such payment to the STOCKHOLDERS, the COMPANY shall have the
amount of such payment approved by HOLDING and, to the extent payment of such
amount exceeds available cash as of the Closing Date (a "Shortfall"), HOLDING
shall cause the COMPANY to make such payment to the STOCKHOLDERS in accordance
with HOLDING'S instructions (which may require that the COMPANY draw on its line
of credit to the extent of the Shortfall or receive funds from HOLDING to the
extent of the Shortfall).
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
HILL YORK ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
HILL YORK CORPORATION
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, HOLDING and NEWCO.......................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS................................................10
5.1 Due Organization................................................11
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................18
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
</TABLE>
-i-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
5.22 Taxes...........................................................21
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................26
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............28
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................31
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................32
6.6 Financial Statements............................................32
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................35
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................41
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............43
7.10 Final Financial Statements......................................43
</TABLE>
-ii-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
7.11 Further Assurances..............................................44
7.12 Authorized Capital..............................................44
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................45
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................46
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO...........................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................47
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................47
9.8 Opinion of Counsel..............................................48
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................48
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............49
10.1 Release From Guarantees; Repayment of Certain Obligations.......49
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................49
10.4 Preservation of Employee Benefit Plans..........................50
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
</TABLE>
-iii-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................58
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................60
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................62
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS ...................................................63
17.2 Representations and Warranties of the STOCKHOLDERS..............64
17.3 Representations and Warranties of HOLDING and NEWCO.............64
</TABLE>
-iv-
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
18. GENERAL...............................................................66
18.1 Cooperation.....................................................66
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................67
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................69
18.10 Time............................................................69
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
</TABLE>
-v-
<PAGE>
<PAGE>
LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND
NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE
STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
-vi-
<PAGE>
<PAGE>
AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), HILL YORK
ACQUISITION CORP., a Delaware corporation ("NEWCO"), HILL YORK CORPORATION, a
Florida corporation (the "COMPANY"), and Robert S. Lafferty, Robert W. Lafferty,
Herbert Dell, Jeffrey N. Phillabaum, Carl Duxbury, Garry Horton, Kim Lafferty
Etzel, Amy Lafferty Hsieh, Mabel G. Lafferty, Teresa C. Daniels, Ruth Lafferty
Biel and Elden Bagley (the "STOCKHOLDERS"). The STOCKHOLDERS are all the
stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Florida;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, Energy Systems Industries, Inc.,
New England Mechanical Services, Inc., Lee Company, Hill York Corporation, Hill
York Service Corporation and Mechanical Services of Orlando, Inc. (collectively,
the "Other Founding Companies") and their respective stockholders in order to
acquire additional providers of commercial and industrial heating, ventilation,
air conditioning, energy and environmental services (the COMPANY, together with
each of the Other Founding Companies, are collectively referred to herein as the
"Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
<PAGE>
<PAGE>
COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
2
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<PAGE>
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
3
<PAGE>
<PAGE>
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Florida.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
4
<PAGE>
<PAGE>
"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
5
<PAGE>
<PAGE>
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Florida and stamped receipt copies of
each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Florida and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and
6
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voting rights of each class of outstanding capital stock of the COMPANY, HOLDING
and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Florida. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to the same extent
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as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Florida in order to withdraw the Certificate of Merger and rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Pre-Closing") shall take place on the
Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of
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8:00 a.m. New York City time on the Closing Date, shall become effective and the
Merger shall thereby be effected, (y) all transactions contemplated by this
Agreement, including the conversion and delivery of shares, the transmission of
funds by wire in an amount equal to the cash portion of the consideration which
the STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to
in Section 3 hereof shall occur and (z) the closing with respect to the IPO
shall occur and be deemed to be completed. The date on which the actions
described in the preceding clauses (x), (y) and (z) occurs shall be referred to
as the "Closing Date." During the period from the Pre-Closing Date to the
Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as set
forth on Schedule 5.1 or (ii) where the failure to be so authorized or
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qualified would not have a material adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise) of
the COMPANY (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete, correct and certified copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to HOLDING, are correct and
complete in all material respects. The most recent minutes of the COMPANY, which
are dated no earlier than ten business days prior to the date hereof, affirm and
ratify all prior acts of the COMPANY and of its officers and directors on behalf
of the COMPANY to the extent any such acts are of a nature that require action
by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's stock and a
description of the material terms of such outstanding options, warrants or other
rights.
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5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which
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are not reflected on the balance sheet of the COMPANY at the Balance Sheet Date
or otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, (ii) any material liabilities of the COMPANY (including but not limited to
all liabilities in excess of $10,000) that are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial Statements at the Balance Sheet Date (but excluding trade
payables incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice) and (iii) all loan agreements, indemnity
or guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements to which the COMPANY is a party. Except as set forth on Schedule
5.10, since the Balance Sheet Date, the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than trade payables
incurred in the ordinary course of business consistent with past practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities were incurred thereafter in the
ordinary course of business consistent with past practice and are not material
either individually or in the aggregate.
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5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the COMPANY has delivered to HOLDING an accurate list and
summary description (which is set forth on Schedule 5.12(b)) of all such
licenses, franchises, permits and other governmental authorizations held the
Company, including all permits, titles, licenses, franchises and certificates
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(it being understood and agreed that a list of all environmental permits and
other environmental approvals required to be identified under this Agreement is
set forth on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12(b) and 5.13 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12(b) and
5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not result in the infringement by the
COMPANY of any Intellectual Property right of any other person or entity or the
infringement of any Intellectual Property listed on Schedule 5.12(a), or result
in a default under or a breach or violation of, or materially and adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.12(b) or
Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) the COMPANY has no material contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
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5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or agreements listed
on Schedule 5.15, and no notice of default under any such contract or agreement
has been received by the COMPANY or any of the STOCKHOLDERS. The COMPANY has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or the
acquisition of
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any personal property, business or assets requiring, in any event, the payment
of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms
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on or prior to the Closing Date, the COMPANY shall have renewed or replaced such
insurance policies on comparable terms and with comparable coverages prior to
their respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY does not currently
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maintain or contribute, and has not in the past three years maintained or
contributed, to any employee pension benefit plan other than the plans set forth
on Schedule 5.19, nor is the COMPANY required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions of employment of any of the COMPANY's
employees, except as set forth on Schedule 5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
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(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such
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Return), and each such Return correctly and completely reflects the Tax
liability and all other information required to be reported thereon. All
Taxes (whether or not shown on any Return) due and payable by the COMPANY,
any subsidiary and any member of a Relevant Group (individually, the
"Acquired Party" and collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
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(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
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1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on
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Schedule 5.23, none of the Material Documents prohibits the use or publication
by the COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the
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STOCKHOLDERS or any Affiliate thereof; provided, that the COMPANY may
negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice; and provided,
further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular
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range of prices or occur at all; (ii) that neither HOLDING nor any of its
shareholders, officers, directors, agents or representatives nor any Underwriter
shall have any liability to the COMPANY, the STOCKHOLDERS or any other person or
entity affiliated or associated with the COMPANY for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or within a particular range of prices or to occur at all; and (iii) that
the decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made independent
of, and without reliance upon, any statements, opinions or other communications,
or due diligence investigations which have been or will be made or performed by
any prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its
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obligations under this Agreement. Except as listed on Schedule 5.33 annexed
hereto, there have been no transactions since January 1, 1992 between the
COMPANY and any of its directors, officers, stockholders or affiliates or any of
their Family Members (as defined below) involving $60,000 or more, except for
any transaction with such persons solely in such capacities. Except as set forth
on Schedule 5.33, each transaction set forth on Schedule 5.33 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of such STOCKHOLDER, since January 1,
1992, none of the officers or directors of the COMPANY or any spouse or Family
Member (as defined below) of any of such persons has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.33 annexed hereto. Except as disclosed
on Schedule 5.33, no Family Member (as defined below) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans. "Family Member"
as it applies to any person shall mean all relatives and their spouses in a
relationship of first cousin or closer to such person or such person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those
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STOCKHOLDERS that are trusts, its trustee or trustees) is capable of evaluating
the merits and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES
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LAWS AND, IF REQUIRED BY ENFINITY CORPORATION, AN OPINION OF
COUNSEL TO ENFINITY CORPORATION STATING THAT REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
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6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and NEWCO
in compliance with all applicable state and Federal laws concerning the issuance
of securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been
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prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet
as of December 31, 1997 presents fairly the financial position of HOLDING as of
such date, and such Statements of Income, Cash Flows and Retained Earnings
present fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
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(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
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6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
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(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
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(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
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requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
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(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
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(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
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7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to
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such amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration
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Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if
at any time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any
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exchange or automated trading system for which application is made to register
the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
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8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
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8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or
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complied with in all material respects on or before each of the Pre-Closing Date
and the Closing Date, as the case may be; and the STOCKHOLDERS shall have
delivered to HOLDING certificates dated the Pre-Closing Date and the Closing
Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date),
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substantially in the form annexed hereto as Annex VII, and covering matters
customary under the circumstances or covering such additional matters as the
Underwriters may reasonably request, and the Underwriters shall have received a
copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the
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COMPANY, with all such guarantees on indebtedness being assumed by HOLDING. In
the event that HOLDING cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to the 90th day subsequent to the Closing
Date, HOLDING shall pay off or otherwise refinance or retire such indebtedness
and, if HOLDING cannot obtain such releases on or prior to the Closing Date,
then HOLDING agrees to indemnify the STOCKHOLDERS against any and all claims
made against them by the beneficiaries of such guarantees which arise as a
result of HOLDING's failure to cause such guarantees to be released on or prior
to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for
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coverage for preexisting conditions. Notwithstanding the foregoing, on or
following the Closing Date, HOLDING may require that the COMPANY freeze or
terminate any defined benefit pension plans in effect at the COMPANY at any
time, subject to applicable laws, and HOLDING shall have no obligation to
provide replacement defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its
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STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (iv) the
matters described on Schedule 11.1(iv), (v) any Tax (in excess of all amounts
accrued therefor on the Balance sheet included in the COMPANY Financial
Statements) relating to a period ending on or before the Closing Date (or any
portion of a period ending after the Closing Date that relates to the portion of
such period ending on the Closing Date, using the closing of the books method)
that has not been paid on or before the Closing Date, or (vi) any Tax imposed
upon or relating to any third party for a pre-Closing Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury Regulations (or any similar provisions of state, local
of foreign law), as a transferee or successor, by contract or otherwise,
provided, however, (A) that in the case of any indemnity arising pursuant to
clause (iii), such indemnity shall not inure to the benefit of HOLDING, NEWCO,
the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to HOLDING's counsel and to HOLDING for
inclusion in the final prospectus, and such information was not so included or
properly delivered, and (B) that each STOCKHOLDER shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification.Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this
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Section 11 if and to the extent that such person's claim for indemnification is
directly or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
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12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
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(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter, (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock and (C) each of Robert S. Lafferty, Robert W. Lafferty and
Herbert Dell shall be entitled to be stockholders of, and to spend, on average,
up to 10% of their professional time with respect to the business and operations
of, each of Hill York Sales & Service, Conditioned Air Corporation of Naples,
Inc., Couse Air Conditioning and Hill York Limited (Bahamian).
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be
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computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm,
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corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the COMPANY, (b) to counsel and
other advisers, provided that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to underwriters and their
counsel in connection with the registration statement and (d) to the Other
Founding Companies and their representatives who have agreed to maintain
confidentiality pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of HOLDING or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), HOLDING and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by HOLDING or NEWCO of the provisions of
this Section, the COMPANY and the STOCKHOLDERS shall be entitled to an
injunction restraining HOLDING and NEWCO from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the COMPANY and the STOCKHOLDERS from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. Upon any
termination of this Agreement, HOLDING and NEWCO shall return all confidential
information of the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any
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interest therein, the intent or effect of which is to reduce the risk of owning
the shares of HOLDING Stock acquired pursuant hereto (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions); provided, that from and after the 24th month
following the Closing Date, the STOCKHOLDER shall be entitled to make such a
Transfer of up to 50% of the number shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued
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in connection with any acquisitions of businesses or assets, HOLDING shall give
each of the STOCKHOLDERS written notice of its intent to do so at least 15 days
prior to the date of filing of a registration statement with the Securities and
Exchange Commission with respect to such registration. Upon the written request
of any of the STOCKHOLDERS or its Permitted Transferees given within 15 days
after receipt of such notice, HOLDING shall cause to be included in such
registration all of the HOLDING Stock issued to the STOCKHOLDERS pursuant to
this Agreement or transferred to such Permitted Transferees which any such
STOCKHOLDER or Permitted Transferee requests be included in such registration,
provided that HOLDING shall have the right to reduce the number of shares to be
included by the STOCKHOLDER in such registration to the extent that inclusion of
such shares could, in the written opinion of tax counsel to HOLDING or its
independent auditors, jeopardize the status of the transactions contemplated
hereby and by the Registration Statement as a tax-free organization. In
addition, if the proposed offering is a firm commitment underwritten offering
and HOLDING is advised in writing in good faith by any managing underwriter of
the securities being offered that the number of shares to be included in such
registration is greater than the number of such shares which can be offered
without adversely affecting the offering, HOLDING may reduce pro rata the number
of shares offered for the accounts of such persons (based upon the number of
shares held by each such person) to a number deemed satisfactory by such
managing underwriter, provided, that, for each such offering made by HOLDING
after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than HOLDING, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing on a pro rata basis the number of shares to be sold by the Founding
Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand
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Registration for all Founding Stockholders and will keep such Demand
Registration current and effective for 120 days (or such shorter period as is
required to sell all of the shares registered thereon).
(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions
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as are reasonable and necessary to comply with the requirements of the 1933 Act
and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of HOLDING's size and investment stature,
including reasonable and customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
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17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have run for all tax
periods ended on or prior to or which include the Closing Date, which shall be
deemed to be the Expiration Date for purposes of this Section 17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
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17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have run for all tax periods ended on or
prior to or which include the Closing Date, which shall be deemed to be the
Expiration Date for purposes of this Section 17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or the
Other Agreements as the case may be.
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(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
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18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
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18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
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Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Hill York Corporation
2125 S. Andrews Avenue
Fort Lauderdale, FL 33316
Facsimile No.: (954) 525-2973
Attn: Robert S. Lafferty
and marked "Personal and Confidential"
with copies to:
May, Meacham & Davell
1 Financial Plaza, Suite 2602
Fort Lauderdale, FL 33394-1697
Facsimile No.: (954) 764-5367
Attn: William Davell, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Florida shall be governed thereby, in each case without reference to
its conflicts of law provisions.
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18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Robert S. Lafferty (hereinafter
referred to
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as the "STOCKHOLDER Representative") as their representative for purposes of all
amendments, consents and waivers under this Agreement and for purposes of taking
actions on behalf of the STOCKHOLDERS pursuant to Section 11 and as
attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with authority
to take any and all actions and make any and all decisions required or permitted
to be taken or made by them with respect to such amendments, consents, waivers
and actions under Section 11 (including, without limitation, the settling of
claims pursuant to Section 11). The STOCKHOLDER Representative shall have and is
hereby granted by the STOCKHOLDERS full power and authority as agent of
STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any other matters concerning the transactions contemplated by
this Agreement, both before and after the Closing, and all action taken by the
STOCKHOLDER Representative hereunder shall be binding upon all of the
STOCKHOLDERS, and their respective successors, heirs, representatives and
assigns as if expressly confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
-----------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
HILL YORK ACQUISITION CORP.
By: /s/ William M. Dillard
-----------------------------
Name: William M. Dillard
Title: President
HILL YORK CORPORATION
By: /s/ Robert S. Lafferty
-----------------------------
Name: Robert S. Lafferty
Title: Chairman and Secretary
STOCKHOLDERS:
/s/ Robert S. Lafferty
-------------------------------
Robert S. Lafferty
/s/ Robert W. Lafferty
-------------------------------
Robert W. Lafferty
/s/ Herbert Dell
-------------------------------
Herbert Dell
/s/ Jeffrey N. Phillabaum
-------------------------------
Jeffrey N. Phillabaum
/s/ Carl Duxbury
-------------------------------
Carl Duxbury
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/s/ Garry Horton
-------------------------------
Garry Horton
/s/ Kim Lafferty Etzel
-------------------------------
Kim Lafferty Etzel
/s/ Amy Lafferty Hsieh
-------------------------------
Amy Lafferty Hsieh
/s/ Mabel G. Lafferty
-------------------------------
Mabel G. Lafferty
/s/ Teresa C. Daniels
-------------------------------
Teresa C. Daniels
/s/ Ruth Lafferty Biel
-------------------------------
Ruth Lafferty Biel
/s/ Elden Bagley
-------------------------------
Elden Bagley
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $4,907,676 and 596,562 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------------------- -----------------
<S> <C> <C>
Robert S. Lafferty 276,717 $3,458,960
Robert W. Lafferty 155,035 830,544
H. Dell 72,393 301,637
J. Phillabaum 47,326 147,893
Kim Etzel 3,694 11,544
Amy Hsieh 3,694 11,544
Mabel Lafferty 3,694 11,544
Teresa Daniels 3,694 11,544
Ruth Biel 3,694 11,544
E. Bagley 9,465 29,579
C. Duxbury 7,690 51,763
G. Horton 9,465 29,579
TOTALS: 596,562 $4,907,676
</TABLE>
MINIMUM VALUE: $11,469,858 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 392,614 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
<PAGE>
<PAGE>
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33 (the current ratio being defined as
the ratio of current assets after withdrawal of all cash included in such
payment to current liabilities), (2) does not cause the COMPANY to have a debt
to equity ratio of greater than 2.25 and (3) does not have debt in excess of the
average total debt outstanding of the COMPANY during the two-year period
preceding the Balance Sheet Date. The payment of such amount to the STOCKHOLDERS
shall be made to the STOCKHOLDERS, pro rata, in accordance with their respective
percentage ownership interests in the COMPANY immediately prior to the Merger.
Prior to making any such payment to the STOCKHOLDERS, the COMPANY shall have the
amount of such payment approved by HOLDING and, to the extent payment of such
amount exceeds available cash as of the Closing Date (a "Shortfall"), HOLDING
shall cause the COMPANY to make such payment to the STOCKHOLDERS in accordance
with HOLDING'S instructions (which may require that the COMPANY draw on its line
of credit to the extent of the Shortfall or receive funds from HOLDING to the
extent of the Shortfall).
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
HILL YORK SERVICE ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
HILL YORK SERVICE CORPORATION
and
the STOCKHOLDERS named herein
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, HOLDING and NEWCO................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................17
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
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5.21 Conformity with Law; Litigation.................................20
5.22 Taxes...........................................................20
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................25
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............27
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................30
6.2 Authorization...................................................30
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................31
6.6 Financial Statements............................................31
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................34
6.14 Taxes...........................................................34
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................40
7.7 Notification of Certain Matters.................................40
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............42
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7.10 Final Financial Statements......................................43
7.11 Further Assurances..............................................43
7.12 Authorized Capital..............................................43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................44
8.4 Opinions of Counsel.............................................44
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................45
8.11 Employment Agreements...........................................45
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................46
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................47
9.8 Opinion of Counsel..............................................47
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................48
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............48
10.1 Release From Guarantees; Repayment of Certain Obligations.......48
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................49
10.4 Preservation of Employee Benefit Plans..........................49
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
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11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................51
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................54
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................57
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................59
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................61
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS ...................................................62
17.2 Representations and Warranties of the STOCKHOLDERS..............63
17.3 Representations and Warranties of HOLDING and NEWCO.............64
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18. GENERAL...............................................................65
18.1 Cooperation.....................................................65
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................66
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................68
18.10 Time............................................................68
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS
OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE
STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), HILL YORK
SERVICE ACQUISITION CORP., a Delaware corporation ("NEWCO"), HILL YORK SERVICE
CORPORATION, a Florida corporation (the "COMPANY"), and Robert S. Lafferty,
Robert W. Lafferty, Donnie Truesdell, Mark Kerney and Alvin Bardes (the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Florida;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, Energy Systems Industries, Inc.,
New England Mechanical Services, Inc., Lee Company, Hill York Corporation and
Mechanical Services of Orlando, Inc. (collectively, the "Other Founding
Companies") and their respective stockholders in order to acquire additional
providers of commercial and industrial heating, ventilation, air conditioning,
energy and environmental services (the COMPANY, together with each of the Other
Founding Companies, are collectively referred to herein as the "Founding
Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
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COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
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"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
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"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Florida.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
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"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
5
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"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Florida and stamped receipt copies of
each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Florida and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and
6
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voting rights of each class of outstanding capital stock of the COMPANY, HOLDING
and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Florida. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to the same extent
7
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as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
8
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Florida in order to withdraw the Certificate of Merger and rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Pre-Closing") shall take place on the
Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall
9
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be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall occur and (z) the closing with
respect to the IPO shall occur and be deemed to be completed. The date on which
the actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." During the period from the Pre-Closing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now
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conducted except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of the COMPANY (as used herein with respect to the
COMPANY, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the COMPANY is incorporated
and contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete, correct and certified copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
COMPANY (the "Charter Documents") are all attached to Schedule 5.1. The minute
books and stock records of the COMPANY, as heretofore made available to HOLDING,
are correct and complete in all material respects. The most recent minutes of
the COMPANY, which are dated no earlier than ten business days prior to the date
hereof, affirm and ratify all prior acts of the COMPANY and of its officers and
directors on behalf of the COMPANY to the extent any such acts are of a nature
that require action by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other
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rights to acquire shares of the COMPANY's stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
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5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities
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were incurred thereafter in the ordinary course of business consistent with past
practice and are not material either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the
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COMPANY has delivered to HOLDING an accurate list and summary description (which
is set forth on Schedule 5.12(b)) of all such licenses, franchises, permits and
other governmental authorizations held the Company, including all permits,
titles, licenses, franchises and certificates (it being understood and agreed
that a list of all environmental permits and other environmental approvals
required to be identified under this Agreement is set forth on Schedule 5.13).
To the knowledge of the COMPANY, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.12(b) and 5.13 are valid, and
the COMPANY has not received any notice that any governmental authority intends
to cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in violation of
any of the foregoing except where such non-compliance or violation would not
have a Material Adverse Effect. Except as specifically provided in Schedule
5.12(a) or 5.12(b), the transactions contemplated by this Agreement will not
result in the infringement by the COMPANY of any Intellectual Property right of
any other person or entity or the infringement of any Intellectual Property
listed on Schedule 5.12(a), or result in a default under or a breach or
violation of, or materially and adversely affect the rights and benefits
afforded to the COMPANY by, any licenses, franchises, permits or government
authorizations listed on Schedule 5.12(b) or Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and
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Liability Act of 1980, as amended; and (v) the COMPANY has no material
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or
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agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received by the COMPANY or any of the
STOCKHOLDERS. The COMPANY has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations or the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
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insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan"
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(within the meaning of Section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. The COMPANY does not currently maintain or contribute, and has not in
the past three years maintained or contributed, to any employee pension benefit
plan other than the plans set forth on Schedule 5.19, nor is the COMPANY
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the COMPANY's employees, except as set forth on Schedule
5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
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(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
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(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
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(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
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(xvi) Since 1952, the COMPANY at all times was an "S" Corporation
within the meaning of Section 1361 of the Code and, if applicable, under
the laws of the State of Florida.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
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5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
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(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
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5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither HOLDING nor any of its shareholders, officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person or entity
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to
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occur at a particular price or within a particular range of prices or to occur
at all; and (iii) that the decision of the STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to HOLDING or the
prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except
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as set forth on Schedule 5.33, each transaction set forth on Schedule 5.33 has
been on reasonable commercial terms which could have been obtained at the time
from bona fide third parties. To the best knowledge of such STOCKHOLDER, since
January 1, 1992, none of the officers or directors of the COMPANY or any spouse
or Family Member (as defined below) of any of such persons has been a director,
officer or consultant of, or owns directly or indirectly any interest in, any
firm, corporation, association or business enterprise which during such period
has been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.33 annexed hereto. Except as disclosed
on Schedule 5.33, no Family Member (as defined below) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans. "Family Member"
as it applies to any person shall mean all relatives and their spouses in a
relationship of first cousin or closer to such person or such person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those STOCKHOLDERS
that are trusts, its trustee or trustees) is capable of evaluating the merits
and risks of the proposed investment in the HOLDING Stock;
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(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY CORPORATION
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
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The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to
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the terms of this Agreement and (ii) HOLDING and NEWCO have the corporate right,
power and authority to enter into this Agreement and the Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and
NEWCO in compliance with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6(a)). Except as
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set forth on Schedule 6.6(a), such Balance Sheet as of December 31, 1997
presents fairly the financial position of HOLDING as of such date, and such
Statements of Income, Cash Flows and Retained Earnings present fairly the
results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
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(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of HOLDING or NEWCO.
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6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
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(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any
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Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant
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Group (i) under Section 1.1502-6 of the Treasury regulations (or any
similar provision of state, local or foreign law), (ii) as a transferee or
successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502- 15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such
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Other Founding Company and to provide the COMPANY with reasonable access and
information as will be provided by the COMPANY pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided
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that debt and/or lease instruments may be replaced if such replacement
instruments are on terms at least as favorable to the COMPANY as the
instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
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(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty
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of the COMPANY or the STOCKHOLDERS contained herein to be untrue or inaccurate
in any material respect at or prior to the Pre-Closing and (ii) any material
failure of any STOCKHOLDER or the COMPANY to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such person
hereunder. HOLDING and NEWCO shall give prompt notice to the COMPANY of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would be likely to cause any representation or warranty of HOLDING or
NEWCO contained herein to be untrue or inaccurate in any material respect at or
prior to the Pre-Closing and (ii) any material failure of HOLDING or NEWCO to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder. The delivery of any notice pursuant to this
Section 7.7 shall not be deemed to (i) modify the representations or warranties
hereunder of the party delivering such notice, which modification may only be
made pursuant to Section 7.8, (ii) modify the conditions set forth in Sections 8
and 9, or (iii) limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to such
amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse
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Effect on the Other Founding Company that is proposing such amendment or
supplement or on HOLDING and the COMPANY does not consent (or is not deemed to
have consented) to such amendment or supplement, then the COMPANY shall have the
right to terminate this Agreement by notice to HOLDING given prior to the
earlier of the Effective Time of the Merger and the fifth day following the date
on which HOLDING gives notice to the COMPANY seeking its consent to such
amendment or supplement. Consent shall have been deemed given for all purposes
of this Agreement by HOLDING or any Founding Company if no response is received
from HOLDING or any such Founding Company within 24 hours following receipt of
notice of such amendment or supplement (or sooner if required by the exigencies
of the circumstances under which such consent is requested). In the event that
the COMPANY seeks to amend or supplement a Schedule pursuant to this Section 7.8
and HOLDING and a majority of the Other Founding Companies do not consent (or
are not deemed to have consented) to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof. In the event that HOLDING or NEWCO seeks to amend or supplement
a Schedule pursuant to this Section 7.8 and a majority of the Founding Companies
do not consent (or are not deemed to have consented) to such amendment or
supplement, this Agreement shall be deemed terminated by mutual consent as set
forth in Section 12.1(i) hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the
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COMPANY or the STOCKHOLDERS contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and to provide the information
needed to correct such inaccuracy. Insofar as the information relates solely to
the COMPANY or the STOCKHOLDERS, the COMPANY represents and warrants as to such
information with respect to itself, and each STOCKHOLDER represents and
warrants, as to such information with respect to the COMPANY and himself or
herself, that the Registration Statement at its effective date, at the date of
the Final Prospectus (as defined in the Underwriting Agreement), the Preliminary
Prospectus (as defined in the Underwriting Agreement), and each amendment to the
Registration Statement, and at each closing date with respect to the IPO under
the Underwriting Agreement (including with respect to any over-allotment option)
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the HOLDING Stock.
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8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
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8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of
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the Other Agreements (the "Other Employment Agreements"). Each of the persons
listed on Schedule 9.12 will have the opportunity to review each such Other
Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to HOLDING certificates dated the Pre-Closing
Date and the Closing Date, respectively, and signed by them to such effect.
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9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date), substantially in the form annexed hereto as Annex VII,
and covering matters customary under the circumstances or covering such
additional matters as the Underwriters may reasonably request, and the
Underwriters shall have received a copy of the same opinion addressed to them.
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9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by HOLDING. In the event that HOLDING
cannot obtain such releases from the lenders of any such guaranteed indebtedness
on or prior to the 90th day subsequent to the Closing Date, HOLDING shall pay
off or otherwise refinance or retire such indebtedness and, if HOLDING cannot
obtain such releases
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on or prior to the Closing Date, then HOLDING agrees to indemnify the
STOCKHOLDERS against any and all claims made against them by the beneficiaries
of such guarantees which arise as a result of HOLDING's failure to cause such
guarantees to be released on or prior to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions. Notwithstanding the foregoing, on or following the
Closing Date, HOLDING may require that the COMPANY freeze or terminate any
defined benefit pension plans in effect at the COMPANY at any time, subject to
applicable laws, and HOLDING shall have no obligation to provide replacement
defined benefit pension plans.
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10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, (iv) the matters described on Schedule 11.1(iv), (v) any Tax relating
to a period ending on or before the Closing Date (or any portion of a period
ending after the Closing Date that relates to the portion of such period ending
on the Closing Date, using the closing of the books method) that has not been
paid on or before the
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Closing Date, or (vi) any Tax imposed upon or relating to any third party for a
pre-Closing Date period, including, in each case, any such Tax for which an
Acquired Party may be liable under Section 1.1502-6 of the Treasury Regulations
(or any similar provisions of state, local of foreign law), as a transferee or
successor, by contract or otherwise, provided, however, (A) that in the case of
any indemnity arising pursuant to clause (iii), such indemnity shall not inure
to the benefit of HOLDING, NEWCO, the COMPANY or the Surviving Corporation to
the extent that such untrue statement (or alleged untrue statement) was made in,
or omission (or alleged omission) occurred in, any preliminary prospectus and
the STOCKHOLDERS provided, in writing, corrected information to HOLDING's
counsel and to HOLDING for inclusion in the final prospectus, and such
information was not so included or properly delivered, and (B) that each
STOCKHOLDER shall be liable for indemnification obligations pursuant to this
Section 11.1 that are attributable to a breach of any representation, warranty
or agreement made in Sections 5.31 through 5.35 by that STOCKHOLDER and not for
breach of the representations, warranties or agreements made in Sections 5.31
through 5.35 by any other STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
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Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall
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not be unreasonably withheld or delayed. All settlements hereunder shall effect
a complete release of the Indemnified Party, unless the Indemnified Party
otherwise agrees in writing. The parties hereto will make appropriate
adjustments for any tax benefits or detriments and any insurance proceeds in
determining the amount of any indemnification obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this Section 11 if and to the extent that such
person's claim for indemnification is directly or indirectly related to a breach
by such person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the
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amount of proceeds received by such STOCKHOLDER in connection with the Merger,
provided that a STOCKHOLDER's indemnification obligations pursuant to Section
11.1(iv) or 11.1(v) shall not be limited. Indemnity obligations hereunder may be
satisfied through the payment of cash or the delivery of HOLDING Stock, or a
combination thereof as determined by the Indemnifying Party in its sole
discretion. For purposes of calculating the value of the HOLDING Stock received
or delivered by a STOCKHOLDER (for purposes of determining the Indemnification
Threshold, limitation on indemnity set forth in the second preceding sentence
and the amount of any indemnity paid), the HOLDING Stock shall be valued at its
initial public offering price as set forth in the Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
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13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
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Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter, (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock and (C) each of Robert S. Lafferty, Robert W. Lafferty and
Donnie Truesdell shall be entitled to be stockholders of, and to spend, on
average, up to 10% of their professional time with respect to the business and
operations of, each of Hill York Sales & Service, Conditioned Air Corporation of
Naples, Inc., Couse Air Conditioning and Hill York Limited (Bahamian).
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
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pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of HOLDING Stock acquired
pursuant hereto (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions); provided, that
from and after the 24th month following the Closing Date, the STOCKHOLDER shall
be entitled to make such a Transfer of up to 50% of the number shares of HOLDING
Stock received by the
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STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be
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included in such registration all of the HOLDING Stock issued to the
STOCKHOLDERS pursuant to this Agreement or transferred to such Permitted
Transferees which any such STOCKHOLDER or Permitted Transferee requests be
included in such registration, provided that HOLDING shall have the right to
reduce the number of shares to be included by the STOCKHOLDER in such
registration to the extent that inclusion of such shares could, in the written
opinion of tax counsel to HOLDING or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if the proposed offering is a firm
commitment underwritten offering and HOLDING is advised in writing in good faith
by any managing underwriter of the securities being offered that the number of
shares to be included in such registration is greater than the number of such
shares which can be offered without adversely affecting the offering, HOLDING
may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares held by each such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
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(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each
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participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of HOLDING's size and investment stature, including reasonable and
customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or Other
Agreements, as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
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(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
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obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be
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consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Hill York Service Corporation
2125 S. Andrews Avenue
Fort Lauderdale, FL 33316
Facsimile No.: (954) 525-2973
Attn: Robert S. Lafferty
and marked "Personal and Confidential"
with copies to:
May, Meacham & Davell
1 Financial Plaza, Suite 2602
Fort Lauderdale, FL 33394
Facsimile No.: (954) 764-5367
Attn: William C. Davell, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Florida shall be governed thereby, in each case without reference to
its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
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18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Robert S. Lafferty (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any
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other matters concerning the transactions contemplated by this Agreement, both
before and after the Closing, and all action taken by the STOCKHOLDER
Representative hereunder shall be binding upon all of the STOCKHOLDERS, and
their respective successors, heirs, representatives and assigns as if expressly
confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
[signature page to follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
-----------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
HILL YORK ACQUISITION CORP.
By: /s/ William M. Dillard
-----------------------------
Name: William M. Dillard
Title: President
HILL YORK SERVICE CORPORATION
By: /s/ Robert S. Lafferty
-----------------------------
Name: Robert S. Lafferty
Title: Chairman and Secretary
STOCKHOLDERS:
/s/ Robert S. Lafferty
-------------------------------
Robert S. Lafferty
/s/ Robert W. Lafferty
-------------------------------
Robert W. Lafferty
/s/ Donnie Truesdell
-------------------------------
Donnie Truesdell
/s/ Mark Kerney
-------------------------------
Mark Kerney
/s/ Alvin Bardes
-------------------------------
Alvin Bardes
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $1,686,630 and 224,647 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER of Hill York Service:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------- ----------------
<S> <C> <C>
Robert S. Lafferty 47,172 589,653
Robert W. Lafferty 66,041 353,792
D. Truesdell 59,811 498,424
A. Bardes 14,241 44,502
M. Kerney 37,382 200,260
------ -------
TOTALS: 224,647 1,686,630
</TABLE>
MINIMUM VALUE: $4,157,747 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 134,930 (in the case of Hill York
Service) [the number of shares sold on behalf of the STOCKHOLDERS to provide the
expected cash portion of the Purchase Price] by (b) the positive difference, if
any, found by subtracting (i) $12.50 from (ii) the public offering price of the
shares of HOLDING Stock in the IPO. For purposes of this footnote, each
STOCKHOLDERS pro rata portion shall based on the minimum cash payable to such
STOCKHOLDER relative to the minimum cash payable to all STOCKHOLDERS as
specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date
<PAGE>
<PAGE>
Balance Sheet, which, after giving effect to the payment to the STOCKHOLDERS of
such amount, (1) does not cause the COMPANY to have a current ratio of less than
1.33 (the current ratio being defined as the ratio of current assets after
withdrawal of all cash included in such payment to current liabilities), (2)
does not cause the COMPANY to have a debt to equity ratio of greater than 2.25
and (3) does not have debt in excess of the average total debt outstanding of
the COMPANY during the two-year period preceding the Balance Sheet Date. The
payment of such amount to the STOCKHOLDERS shall be made to the STOCKHOLDERS,
pro rata, in accordance with their respective percentage ownership interests in
the COMPANY immediately prior to the Merger. Prior to making any such payment to
the STOCKHOLDERS, the COMPANY shall have the amount of such payment approved by
HOLDING and, to the extent payment of such amount exceeds available cash as of
the Closing Date (a "Shortfall"), HOLDING shall cause the COMPANY to make such
payment to the STOCKHOLDERS in accordance with HOLDING'S instructions (which may
require that the COMPANY draw on its line of credit to the extent of the
Shortfall or receive funds from HOLDING to the extent of the Shortfall).
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
LEE ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
LEE COMPANY
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of Directors
of Surviving Corporation.........................................6
1.4 Certain Information With Respect to the Capital Stock of the
COMPANY, HOLDING and NEWCO.......................................7
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................17
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
</TABLE>
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<TABLE>
<S> <C> <C>
5.22 Taxes...........................................................20
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................25
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............27
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................30
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................31
6.6 Financial Statements............................................31
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................34
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................40
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............42
7.10 Final Financial Statements......................................43
</TABLE>
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<TABLE>
<S> <C> <C>
7.11 Further Assurances..............................................43
7.12 Authorized Capital..............................................43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................44
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................45
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................46
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................47
9.8 Opinion of Counsel..............................................47
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................48
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............48
10.1 Release From Guarantees; Repayment of Certain Obligations.......48
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................49
10.4 Preservation of Employee Benefit Plans..........................49
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
</TABLE>
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<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................57
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................59
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................61
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and the
STOCKHOLDERS....................................................62
17.2 Representations and Warranties of the STOCKHOLDERS..............63
17.3 Representations and Warranties of HOLDING and NEWCO.............64
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
18. GENERAL...............................................................65
18.1 Cooperation.....................................................65
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................66
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................68
18.10 Time............................................................68
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
</TABLE>
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), LEE ACQUISITION
CORP., a Delaware corporation ("NEWCO"), LEE COMPANY, a Tennessee corporation
(the "COMPANY"), and Wallace L. Lee, Ted L. Lee, William B. Lee, Andrew F.
Bishop, Michael R. Bishop, Cynthia A. Lee, Steven B. Lee, Abby L. Mitchell and
Carol L. Fold (the "STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of
the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Tennessee;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, Energy Systems Industries, Inc.,
New England Mechanical Services, Inc., Hill York Corporation, Hill York Service
Corporation and Mechanical Services of Orlando, Inc. (collectively, the "Other
Founding Companies") and their respective stockholders in order to acquire
additional providers of commercial and industrial heating, ventilation, air
conditioning, energy and environmental services (the COMPANY, together with each
of the Other Founding Companies, are collectively referred to herein as the
"Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
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COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
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"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
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"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Tennessee.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
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"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
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"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Tennessee and stamped receipt copies
of each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Tennessee and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
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1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
HOLDING and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Tennessee. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or
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enlarged by the Merger, and all debts, liabilities and duties of the COMPANY and
NEWCO shall attach to the Surviving Corporation and may be enforced against the
Surviving Corporation to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Tennessee in order to withdraw the Certificate of Merger and
rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
described in clauses (i) and (ii) above (the "Pre-Closing") shall take place on
the Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall
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be or shall have been filed with the appropriate state authorities so that they
shall be or, as of 8:00 a.m. New York City time on the Closing Date, shall
become effective and the Merger shall thereby be effected, (y) all transactions
contemplated by this Agreement, including the conversion and delivery of shares,
the transmission of funds by wire in an amount equal to the cash portion of the
consideration which the STOCKHOLDERS shall be entitled to receive pursuant to
the Merger referred to in Section 3 hereof shall occur and (z) the closing with
respect to the IPO shall occur and be deemed to be completed. The date on which
the actions described in the preceding clauses (x), (y) and (z) occurs shall be
referred to as the "Closing Date." During the period from the Pre-Closing Date
to the Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now
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conducted except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of the COMPANY (as used herein with respect to the
COMPANY, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the COMPANY is incorporated
and contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete, correct and certified copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
COMPANY (the "Charter Documents") are all attached to Schedule 5.1. The minute
books and stock records of the COMPANY, as heretofore made available to HOLDING,
are correct and complete in all material respects. The most recent minutes of
the COMPANY, which are dated no earlier than ten business days prior to the date
hereof, affirm and ratify all prior acts of the COMPANY and of its officers and
directors on behalf of the COMPANY to the extent any such acts are of a nature
that require action by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other
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rights to acquire shares of the COMPANY's stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
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5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities
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were incurred thereafter in the ordinary course of business consistent with past
practice and are not material either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the
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COMPANY has delivered to HOLDING an accurate list and summary description (which
is set forth on Schedule 5.12(b)) of all such licenses, franchises, permits and
other governmental authorizations held the Company, including all permits,
titles, licenses, franchises and certificates (it being understood and agreed
that a list of all environmental permits and other environmental approvals
required to be identified under this Agreement is set forth on Schedule 5.13).
To the knowledge of the COMPANY, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.12(b) and 5.13 are valid, and
the COMPANY has not received any notice that any governmental authority intends
to cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in violation of
any of the foregoing except where such non-compliance or violation would not
have a Material Adverse Effect. Except as specifically provided in Schedule
5.12(a) or 5.12(b), the transactions contemplated by this Agreement will not
result in the infringement by the COMPANY of any Intellectual Property right of
any other person or entity or the infringement of any Intellectual Property
listed on Schedule 5.12(a), or result in a default under or a breach or
violation of, or materially and adversely affect the rights and benefits
afforded to the COMPANY by, any licenses, franchises, permits or government
authorizations listed on Schedule 5.12(b) or Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and
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Liability Act of 1980, as amended; and (v) the COMPANY has no material
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or
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agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received by the COMPANY or any of the
STOCKHOLDERS. The COMPANY has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations or the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
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insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan"
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(within the meaning of Section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. The COMPANY does not currently maintain or contribute, and has not in
the past three years maintained or contributed, to any employee pension benefit
plan other than the plans set forth on Schedule 5.19, nor is the COMPANY
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the COMPANY's employees, except as set forth on Schedule
5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
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(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
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(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
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(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
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(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
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notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
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(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
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(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any
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kind, whether express or implied, oral or written, that a Registration Statement
will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither HOLDING nor any of its shareholders, officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person or entity affiliated or associated with the
COMPANY for any failure of the Registration Statement to become effective, the
IPO to occur at a particular price or within a particular range of prices or to
occur at all; and (iii) that the decision of the STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to HOLDING or the
prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
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immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of the COMPANY or has any material claim whatsoever against or owes any
amount to the COMPANY, except for claims in the ordinary course of business such
as for accrued vacation pay and accrued benefits under employee benefit plans.
"Family Member" as it applies to any person shall mean all relatives and their
spouses in a relationship of first cousin or closer to such person or such
person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has
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such knowledge and experience in financial and business matters that it (or for
those STOCKHOLDERS that are trusts, its trustee or trustees) is capable of
evaluating the merits and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
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REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF
REQUIRED BY ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY
CORPORATION STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING
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Charter Documents") are all attached hereto as Annex II. Schedule 6.1 sets forth
a list of all jurisdictions in which HOLDING or NEWCO is authorized or qualified
to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned
of record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and
NEWCO in compliance with all applicable state and Federal laws concerning the
issuance of securities. Further, none of such shares was issued in violation
of the preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which
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reflect the results of its operations from inception: HOLDING's audited Balance
Sheet as of December 31, 1997 and Statements of Income, Cash Flows and Retained
Earnings for the period from inception through December 31, 1997. Such HOLDING
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.6(a)). Except as set forth
on Schedule 6.6(a), such Balance Sheet as of December 31, 1997 presents fairly
the financial position of HOLDING as of such date, and such Statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
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(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
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6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
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(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
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(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
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requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
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(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
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(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
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7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to
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such amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration
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Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if
at any time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any
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exchange or automated trading system for which application is made to register
the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
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8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
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8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or
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complied with in all material respects on or before each of the Pre-Closing Date
and the Closing Date, as the case may be; and the STOCKHOLDERS shall have
delivered to HOLDING certificates dated the Pre-Closing Date and the Closing
Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date),
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substantially in the form annexed hereto as Annex VII, and covering matters
customary under the circumstances or covering such additional matters as the
Underwriters may reasonably request, and the Underwriters shall have received a
copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the
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COMPANY, with all such guarantees on indebtedness being assumed by HOLDING. In
the event that HOLDING cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to the 90th day subsequent to the Closing
Date, HOLDING shall pay off or otherwise refinance or retire such indebtedness
and, if HOLDING cannot obtain such releases on or prior to the Closing Date,
then HOLDING agrees to indemnify the STOCKHOLDERS against any and all claims
made against them by the beneficiaries of such guarantees which arise as a
result of HOLDING's failure to cause such guarantees to be released on or prior
to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for
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coverage for preexisting conditions. Notwithstanding the foregoing, on or
following the Closing Date, HOLDING may require that the COMPANY freeze or
terminate any defined benefit pension plans in effect at the COMPANY at any
time, subject to applicable laws, and HOLDING shall have no obligation to
provide replacement defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the Other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its
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STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (iv) the
matters described on Schedule 11.1(iv), (v) any Tax (in excess of all amounts
accrued therefor on the Balance Sheet included in the Company Financial
Statements) relating to a period ending on or before the Closing Date (or any
portion of a period ending after the Closing Date that relates to the portion of
such period ending on the Closing Date, using the closing of the books method)
that has not been paid on or before the Closing Date, or (vi) any Tax imposed
upon or relating to any third party for a pre-Closing Date period, including, in
each case, any such Tax for which an Acquired Party may be liable under Section
1.1502-6 of the Treasury Regulations (or any similar provisions of state, local
of foreign law), as a transferee or successor, by contract or otherwise,
provided, however, (A) that in the case of any indemnity arising pursuant to
clause (iii), such indemnity shall not inure to the benefit of HOLDING, NEWCO,
the COMPANY or the Surviving Corporation to the extent that such untrue
statement (or alleged untrue statement) was made in, or omission (or alleged
omission) occurred in, any preliminary prospectus and the STOCKHOLDERS provided,
in writing, corrected information to HOLDING's counsel and to HOLDING for
inclusion in the final prospectus, and such information was not so included or
properly delivered, and (B) that each STOCKHOLDER shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this
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Section 11 if and to the extent that such person's claim for indemnification is
directly or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
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12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
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(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
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pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of HOLDING Stock acquired
pursuant hereto (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions); provided, that
from and after the 24th month following the Closing Date, the STOCKHOLDER shall
be entitled to make such a Transfer of up to 50% of the number shares of HOLDING
Stock received by the
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STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be
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included in such registration all of the HOLDING Stock issued to the
STOCKHOLDERS pursuant to this Agreement or transferred to such Permitted
Transferee which any such STOCKHOLDER or Permitted Transferee requests be
included in such registration, provided that HOLDING shall have the right to
reduce the number of shares to be included by the STOCKHOLDER in such
registration to the extent that inclusion of such shares could, in the written
opinion of tax counsel to HOLDING or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if the proposed offering is a firm
commitment underwritten offering and HOLDING is advised in writing in good faith
by any managing underwriter of the securities being offered that the number of
shares to be included in such registration is greater than the number of such
shares which can be offered without adversely affecting the offering, HOLDING
may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares held by each such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
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(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each
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participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of HOLDING's size and investment stature, including reasonable and
customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or Other
Agreements as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
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(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
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obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be
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consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Lee Company
331 Mallory Station Road
Franklin, TN 37067
Facsimile No.: (615) 567-1026
Attn: William B. Lee
and marked "Personal and Confidential"
with copies to:
Fred W. Beesley, Jr.
Parkway Towers, Suite 1720
404 James Robertson Parkway
Nashville, TN 37219
Facsimile No.: (615) 244-1229
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Tennessee shall be governed thereby, in each case without reference to
its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
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18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed William B. Lee (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any other matters concerning the
69
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<PAGE>
transactions contemplated by this Agreement, both before and after the Closing,
and all action taken by the STOCKHOLDER Representative hereunder shall be
binding upon all of the STOCKHOLDERS, and their respective successors, heirs,
representatives and assigns as if expressly confirmed and ratified in writing by
each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
70
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
By: /s/ Rodney C. Gilbert
---------------------------------------
Name: Rodney C. Gilbert
Title: Chief Executive Officer
LEE ACQUISITION CORP.
By: /s/ William M. Dillard
---------------------------------------
Name: William M. Dillard
Title: President
LEE COMPANY
By: /s/ William B. Lee
---------------------------------------
Name: Wiliam B. Lee
Title: President
STOCKHOLDERS:
/s/ Wallace L. Lee
------------------------------------------
Wallace L. Lee
/s/ Ted L. Lee
------------------------------------------
Ted L. Lee
/s/ William B. Lee
------------------------------------------
William B. Lee
/s/ Andrew F. Bishop
------------------------------------------
Andrew F. Bishop
/s/ Michael R. Bishop
------------------------------------------
Michael R. Bishop
71
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<PAGE>
/s/ Cynthia A. Lee
------------------------------------------
Cynthia A. Lee
/s/ Steven B. Lee
------------------------------------------
Steven B. Lee
/s/ Abby L. Mitchell
------------------------------------------
Abby L. Mitchell
/s/ Carol L. Fold
------------------------------------------
Carol L. Fold
72
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $10,800,171 and 1,296,274 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------- ----------------
<S> <C> <C>
Mike Bishop 164,829 $639,976
Andy Bishop 164,829 639,976
Bill Lee 476,342 3,496,958
Ted Lee 205,899 2,286,957
Wallace Lee 104,040 3,736,303
Steven Lee 45,084 -
Cynthia Lee 45,084 -
Abby Mitchell 45,084 -
Carol Fold 45,084 -
------ -
TOTALS: 1,296,274 10,800,171
</TABLE>
MINIMUM VALUE: $25,059,185 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share) plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 864,014 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the
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<PAGE>
COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33 (the current ratio being defined as
the ratio of current assets after withdrawal of all cash included in such
payment to current liabilities), (2) does not cause the COMPANY to have a debt
to equity ratio of greater than 2.25 and (3) does not have debt in excess of the
average total debt outstanding of the COMPANY during the two-year period
preceding the Balance Sheet Date. The payment of such amount to the STOCKHOLDERS
shall be made to the STOCKHOLDERS, pro rata, in accordance with their respective
percentage ownership interests in the COMPANY immediately prior to the Merger.
Prior to making any such payment to the STOCKHOLDERS, the COMPANY shall have the
amount of such payment approved by HOLDING and, to the extent payment of such
amount exceeds available cash as of the Closing Date (a "Shortfall"), HOLDING
shall cause the COMPANY to make such payment to the STOCKHOLDERS in accordance
with HOLDING'S instructions (which may require that the COMPANY draw on its line
of credit to the extent of the Shortfall or receive funds from HOLDING to the
extent of the Shortfall).
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
MSI ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
MECHANICAL SERVICES OF ORLANDO, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of
Directors of Surviving Corporation...............................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, HOLDING and NEWCO................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................12
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................17
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
</TABLE>
-i-
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<TABLE>
<S> <C> <C>
5.22 Taxes...........................................................20
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................25
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............27
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................30
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................31
6.6 Financial Statements............................................31
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................34
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................40
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............42
7.10 Final Financial Statements......................................43
</TABLE>
-ii-
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<TABLE>
<S> <C> <C>
7.11 Further Assurances..............................................43
7.12 Authorized Capital..............................................43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................44
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................45
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................46
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................47
9.8 Opinion of Counsel..............................................47
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................48
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............48
10.1 Release From Guarantees; Repayment of Certain Obligations.......48
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers..........................................49
10.4 Preservation of Employee Benefit Plans..........................49
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
</TABLE>
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<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................57
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................59
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................61
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY
and the STOCKHOLDERS............................................62
17.2 Representations and Warranties of the STOCKHOLDERS..............63
17.3 Representations and Warranties of HOLDING and NEWCO.............64
</TABLE>
-iv-
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<TABLE>
<S> <C> <C>
18. GENERAL...............................................................65
18.1 Cooperation.....................................................65
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................66
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................68
18.10 Time............................................................68
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
</TABLE>
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER......................................73
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF
HOLDING AND NEWCO...............................................74
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS....................75
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY.................76
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING.....................77
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING...........................78
ANNEX VII FORM OF OPINION OF COUNSEL TO
THE COMPANY AND THE STOCKHOLDERS................................81
ANNEX VIII FORM OF TAX OPINION.............................................88
-vi-
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), MSI ACQUISITION
CORP., a Delaware corporation ("NEWCO"), Mechanical Services of Orlando, Inc., a
Florida corporation (the "COMPANY"), and William Mason Dillard Revocable Trust
and Deborah K. Dillard Revocable Trust (the "STOCKHOLDERS"). The STOCKHOLDERS
are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Florida;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, Energy Systems Industries, Inc.,
New England Mechanical Services, Inc., Lee Company, Hill York Corporation and
Hill York Service Corporation (collectively, the "Other Founding Companies") and
their respective stockholders in order to acquire additional providers of
commercial and industrial heating, ventilation, air conditioning, energy and
environmental services (the COMPANY, together with each of the Other Founding
Companies, are collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
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<PAGE>
COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
2
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<PAGE>
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
3
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<PAGE>
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Florida.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
4
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<PAGE>
"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
5
<PAGE>
<PAGE>
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Florida and stamped receipt copies of
each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Florida and of the Certificate or
Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and
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voting rights of each class of outstanding capital stock of the COMPANY, HOLDING
and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the Florida
Business Corporation Act. Except as herein specifically set forth, the identity,
existence, purposes, powers, objects, franchises, privileges, rights and
immunities of the COMPANY shall continue unaffected and unimpaired by the Merger
and the corporate franchises, existence and rights of NEWCO shall be merged with
and into the COMPANY, and the COMPANY, as the Surviving Corporation, shall be
fully vested therewith. At the Effective Time of the Merger, the separate
existence of NEWCO shall cease and, in accordance with the terms of this
Agreement, the Surviving Corporation shall possess all the rights, privileges,
immunities and franchises, of a public as well as of a private nature, and all
property, real, personal and mixed, and all debts due on whatever account,
including subscriptions to shares, and all Taxes, including those due and owing
and those accrued, and all other choses in action, and all and every other
interest of or belonging to or due to the COMPANY and NEWCO shall be taken and
deemed to be transferred to, and vested in, the Surviving Corporation without
further act or deed; and all property, rights and privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the COMPANY and NEWCO;
and the title to any real estate, or interest therein, whether by deed or
otherwise, vested in the COMPANY and NEWCO under the laws of the state of
incorporation of each thereof, shall not revert or be in any way impaired by
reason of the Merger. Except as otherwise provided herein, the Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of the COMPANY and NEWCO and any claim existing, or action or
proceeding pending, by or against the COMPANY or NEWCO may be prosecuted as if
the Merger had not taken place, or the Surviving Corporation may be substituted
in its place. Neither the rights of creditors nor any liens upon the property of
the COMPANY or NEWCO shall be impaired or enlarged by the Merger, and all debts,
liabilities and duties of the COMPANY and NEWCO shall attach to the Surviving
Corporation and may be enforced against the Surviving Corporation to the same
extent
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as if said debts, liabilities and duties had been incurred or contracted by the
Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Florida in order to withdraw the Certificate of Merger and rescind
any merger or other actions effected by the advance filing of the Articles of
Merger as described in this Section. The taking of the actions described in
clauses (i) and (ii) above (the "Pre-Closing") shall take place on the
Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of
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8:00 a.m. New York City time on the Closing Date, shall become effective and the
Merger shall thereby be effected, (y) all transactions contemplated by this
Agreement, including the conversion and delivery of shares, the transmission of
funds by wire in an amount equal to the cash portion of the consideration which
the STOCKHOLDERS shall be entitled to receive pursuant to the Merger referred to
in Section 3 hereof shall occur and (z) the closing with respect to the IPO
shall occur and be deemed to be completed. The date on which the actions
described in the preceding clauses (x), (y) and (z) occurs shall be referred to
as the "Closing Date." During the period from the Pre-Closing Date to the
Closing Date, this Agreement may only be terminated by the parties if the
underwriting agreement in respect of the IPO is terminated pursuant to the terms
of such underwriting agreement. This Agreement shall in any event terminate if
the Closing Date has not occurred within 15 business days of the Pre-Closing
Date. Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as set
forth on Schedule 5.1 or (ii) where the failure to be so authorized or
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qualified would not have a material adverse effect on the business, operations,
affairs, prospects, properties, assets or condition (financial or otherwise) of
the COMPANY (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete, correct and certified copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to HOLDING, are correct and
complete in all material respects. The most recent minutes of the COMPANY, which
are dated no earlier than ten business days prior to the date hereof, affirm and
ratify all prior acts of the COMPANY and of its officers and directors on behalf
of the COMPANY to the extent any such acts are of a nature that require action
by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's stock and a
description of the material terms of such outstanding options, warrants or other
rights.
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5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which
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are not reflected on the balance sheet of the COMPANY at the Balance Sheet Date
or otherwise reflected in the COMPANY Financial Statements at the Balance Sheet
Date, (ii) any material liabilities of the COMPANY (including but not limited to
all liabilities in excess of $10,000) that are not reflected on the balance
sheet of the COMPANY at the Balance Sheet Date or otherwise reflected in the
COMPANY Financial Statements at the Balance Sheet Date (but excluding trade
payables incurred since the Balance Sheet Date in the ordinary course of
business consistent with past practice) and (iii) all loan agreements, indemnity
or guaranty agreements, bonds, mortgages, liens, pledges or other security
agreements to which the COMPANY is a party. Except as set forth on Schedule
5.10, since the Balance Sheet Date, the COMPANY has not incurred any material
liabilities of any kind, character and description, whether accrued, absolute,
secured or unsecured, contingent or otherwise, other than trade payables
incurred in the ordinary course of business consistent with past practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities were incurred thereafter in the
ordinary course of business consistent with past practice and are not material
either individually or in the aggregate.
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5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the COMPANY has delivered to HOLDING an accurate list and
summary description (which is set forth on Schedule 5.12(b)) of all such
licenses, franchises, permits and other governmental authorizations held the
Company, including all permits, titles, licenses, franchises and certificates
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(it being understood and agreed that a list of all environmental permits and
other environmental approvals required to be identified under this Agreement is
set forth on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12(b) and 5.13 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12(b) and
5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not result in the infringement by the
COMPANY of any Intellectual Property right of any other person or entity or the
infringement of any Intellectual Property listed on Schedule 5.12(a), or result
in a default under or a breach or violation of, or materially and adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.12(b) or
Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) the COMPANY has no material contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
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5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or agreements listed
on Schedule 5.15, and no notice of default under any such contract or agreement
has been received by the COMPANY or any of the STOCKHOLDERS. The COMPANY has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or the
acquisition of
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any personal property, business or assets requiring, in any event, the payment
of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms
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on or prior to the Closing Date, the COMPANY shall have renewed or replaced such
insurance policies on comparable terms and with comparable coverages prior to
their respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY does not currently
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maintain or contribute, and has not in the past three years maintained or
contributed, to any employee pension benefit plan other than the plans set forth
on Schedule 5.19, nor is the COMPANY required to contribute to any retirement
plan pursuant to the provisions of any collective bargaining agreement
establishing the terms and conditions of employment of any of the COMPANY's
employees, except as set forth on Schedule 5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
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(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such
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Return), and each such Return correctly and completely reflects the Tax
liability and all other information required to be reported thereon. All
Taxes (whether or not shown on any Return) due and payable by the COMPANY,
any subsidiary and any member of a Relevant Group (individually, the
"Acquired Party" and collectively, the "Acquired Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
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(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
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1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on
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Schedule 5.23, none of the Material Documents prohibits the use or publication
by the COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the
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STOCKHOLDERS or any Affiliate thereof; provided, that the COMPANY may
negotiate and adjust bills in the course of good faith disputes with
customers in a manner consistent with past practice; and provided,
further, that such adjustments shall not be deemed to be included in
Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
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Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular
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range of prices or occur at all; (ii) that neither HOLDING nor any of its
shareholders, officers, directors, agents or representatives nor any Underwriter
shall have any liability to the COMPANY, the STOCKHOLDERS or any other person or
entity affiliated or associated with the COMPANY for any failure of the
Registration Statement to become effective, the IPO to occur at a particular
price or within a particular range of prices or to occur at all; and (iii) that
the decision of the STOCKHOLDERS to enter into this Agreement, or to vote in
favor of or consent to the proposed Merger, has been or will be made independent
of, and without reliance upon, any statements, opinions or other communications,
or due diligence investigations which have been or will be made or performed by
any prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its
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obligations under this Agreement. Except as listed on Schedule 5.33 annexed
hereto, there have been no transactions since January 1, 1992 between the
COMPANY and any of its directors, officers, stockholders or affiliates or any of
their Family Members (as defined below) involving $60,000 or more, except for
any transaction with such persons solely in such capacities. Except as set forth
on Schedule 5.33, each transaction set forth on Schedule 5.33 has been on
reasonable commercial terms which could have been obtained at the time from bona
fide third parties. To the best knowledge of such STOCKHOLDER, since January 1,
1992, none of the officers or directors of the COMPANY or any spouse or Family
Member (as defined below) of any of such persons has been a director, officer or
consultant of, or owns directly or indirectly any interest in, any firm,
corporation, association or business enterprise which during such period has
been a significant supplier, customer or sales agent of the COMPANY or has
competed with or been engaged in any business of the kind being conducted by the
COMPANY except as disclosed on Schedule 5.33 annexed hereto. Except as disclosed
on Schedule 5.33, no Family Member (as defined below) of any STOCKHOLDER,
officer or director of the COMPANY is currently an employee or consultant
receiving payments from the COMPANY or otherwise on the payroll of the COMPANY
or has any material claim whatsoever against or owes any amount to the COMPANY,
except for claims in the ordinary course of business such as for accrued
vacation pay and accrued benefits under employee benefit plans. "Family Member"
as it applies to any person shall mean all relatives and their spouses in a
relationship of first cousin or closer to such person or such person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those
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STOCKHOLDERS that are trusts, its trustee or trustees) is capable of evaluating
the merits and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES
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LAWS AND, IF REQUIRED BY ENFINITY CORPORATION, AN OPINION OF
COUNSEL TO ENFINITY CORPORATION STATING THAT REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
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6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and NEWCO
in compliance with all applicable state and Federal laws concerning the issuance
of securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been
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prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as noted thereon or
on Schedule 6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet
as of December 31, 1997 presents fairly the financial position of HOLDING as of
such date, and such Statements of Income, Cash Flows and Retained Earnings
present fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
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(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
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6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
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(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
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(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
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requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
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(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
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(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
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7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to
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such amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration
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Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if
at any time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any
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exchange or automated trading system for which application is made to register
the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
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8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
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8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or
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complied with in all material respects on or before each of the Pre-Closing Date
and the Closing Date, as the case may be; and the STOCKHOLDERS shall have
delivered to HOLDING certificates dated the Pre-Closing Date and the Closing
Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date),
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substantially in the form annexed hereto as Annex VII, and covering matters
customary under the circumstances or covering such additional matters as the
Underwriters may reasonably request, and the Underwriters shall have received a
copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the
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COMPANY, with all such guarantees on indebtedness being assumed by HOLDING. In
the event that HOLDING cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to the 90th day subsequent to the Closing
Date, HOLDING shall pay off or otherwise refinance or retire such indebtedness
and, if HOLDING cannot obtain such releases on or prior to the Closing Date,
then HOLDING agrees to indemnify the STOCKHOLDERS against any and all claims
made against them by the beneficiaries of such guarantees which arise as a
result of HOLDING's failure to cause such guarantees to be released on or prior
to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for
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coverage for preexisting conditions. Notwithstanding the foregoing, on or
following the Closing Date, HOLDING may require that the COMPANY freeze or
terminate any defined benefit pension plans in effect at the COMPANY at any
time, subject to applicable laws, and HOLDING shall have no obligation to
provide replacement defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its
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STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (iv) the
matters described on Schedule 11.1(iv), (v) any Tax (in excess of all amounts
accrued therefor on the Balance Sheet included in the COMPANY Financial
Statements) relating to a period ending on or before the Closing Date (or any
portion of a period ending after the Closing Date that relates to the portion of
such period ending on the Closing Date, using the closing of the books method)
that has not been paid on or before the Closing Date, or (vi) any Tax imposed
upon or relating to any third party for a pre-Closing Date period, including,
in each case, any such Tax for which an Acquired Party may be liable under
Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local of foreign law), as a transferee or successor, by contract or
otherwise, provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii), such indemnity shall not inure to the benefit of
HOLDING, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to HOLDING's counsel and to HOLDING
for inclusion in the final prospectus, and such information was not so included
or properly delivered, and (B) that each STOCKHOLDER shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this
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Section 11 if and to the extent that such person's claim for indemnification is
directly or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
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12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
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(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they had in the past, currently have, and in the future may have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or HOLDING, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and
acknowledge that they had in the past and currently have access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. HOLDING and NEWCO agree that, prior to the Pre-Closing, or
if the Transactions contemplated by this Agreement are not consummated, they
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the COMPANY, (b) to counsel and
other advisers, provided that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to underwriters and their
counsel in connection with the registration statement and (d) to the Other
Founding Companies and their representatives who have agreed to maintain
confidentiality
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pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of HOLDING Stock acquired
pursuant hereto (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions); provided, that
from and after the 24th month following the Closing Date, the STOCKHOLDER shall
be entitled to make such a Transfer of up to 50% of the number shares of HOLDING
Stock received by the
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STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be
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included in such registration all of the HOLDING Stock issued to the
STOCKHOLDERS pursuant to this Agreement or transferred to such Permitted
Transferees which any such STOCKHOLDER or Permitted Transferee requests be
included in such registration, provided that HOLDING shall have the right to
reduce the number of shares to be included by the STOCKHOLDER in such
registration to the extent that inclusion of such shares could, in the written
opinion of tax counsel to HOLDING or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if the proposed offering is a firm
commitment underwritten offering and HOLDING is advised in writing in good faith
by any managing underwriter of the securities being offered that the number of
shares to be included in such registration is greater than the number of such
shares which can be offered without adversely affecting the offering, HOLDING
may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares held by each such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
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(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each
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participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of HOLDING's size and investment stature, including reasonable and
customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or Other
Agreements as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
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(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and
NEWCO shall each deliver or cause to be delivered to the other on the Closing
Date, and at such other times and places as shall be reasonably agreed to, such
additional instruments as the other may reasonably request for the purpose of
carrying out this Agreement. The COMPANY will cooperate and use its reasonable
efforts to have the present officers, directors and employees of the COMPANY
cooperate with HOLDING on and after the Closing Date in furnishing information,
evidence, testimony and other assistance in connection with any Tax Return
filing
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obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be
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consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Mechanical Service of Orlando, Inc.
9440 Sidney Harp Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: William M. Dillard
and marked "Personal and Confidential"
with copies to:
Akerman, Senterfitt & Eidson, P.A.
One Southeast Third Avenue
Miami, FL 33131
Facsimile No.: (305) 374-5095
Attn: Jonathan L. Awner, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Florida shall be governed thereby, in each case without reference to
its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
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18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed William Mason Dillard
(hereinafter referred to as the "STOCKHOLDER Representative") as their
representative for purposes of all amendments, consents and waivers under this
Agreement and for purposes of taking actions on behalf of the STOCKHOLDERS
pursuant to Section 11 and as attorney-in-fact and agent for and on behalf of
the STOCKHOLDERS with authority to take any and all actions and make any and all
decisions required or permitted to be taken or made by them with respect to such
amendments, consents, waivers and actions under Section 11 (including, without
limitation, the settling of claims pursuant to Section 11). The STOCKHOLDER
Representative shall have and is hereby granted by the STOCKHOLDERS full power
and authority as agent of STOCKHOLDERS to represent such STOCKHOLDERS, and their
respective successors, heirs, representatives, and assigns with respect to all
matters arising under this Agreement and any
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other matters concerning the transactions contemplated by this Agreement, both
before and after the Closing, and all action taken by the STOCKHOLDER
Representative hereunder shall be binding upon all of the STOCKHOLDERS, and
their respective successors, heirs, representatives and assigns as if expressly
confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
/s/ Rodney C. Gilbert
By: _________________________________
Name: Rodney C. Gilbert
Title: Chief Executive Officer
MSI ACQUISITION CORP.
/s/ William M. Dillard
By: _________________________________
Name: William M. Dillard
Title: President
MECHANICAL SERVICES OF ORLANDO, INC.
/s/ William M. Dillard
By: _________________________________
Name: William M. Dillard
Title: President
STOCKHOLDERS:
WILLIAM MASON DILLARD
REVOCABLE TRUST
/s/ William M. Dillard
By: _________________________________
Name: William M. Dillard
Title: Trustee
DEBORAH K. DILLARD REVOCABLE TRUST
/s/ Deborah K. Dillard
By: _________________________________
Name: Deborah K. Dillard
Title: Trustee
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Each of the following individuals is executing this Agreement for purposes of
indicating his or her agreement with the restrictions imposed upon such
individual under Section 13.
/s/ William M. Dillard
__________________________________
William Mason Dillard
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $5,657,904 and 678,948 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------- ----------------
<S> <C> <C>
William Dillard Rev. Trust 339,474 2,828,952
Deborah Dillard Rev. Trust 339,474 2,828,952
------- ---------
TOTALS: 678,948 5,657,904
</TABLE>
MINIMUM VALUE: $13,126,332 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share) plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 452,632 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33 (the current ratio being defined as
the ratio of current assets after withdrawal of all cash
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included in such payment to current liabilities), (2) does not cause the COMPANY
to have a debt to equity ratio of greater than 2.25 and (3) does not have debt
in excess of the average total debt outstanding of the COMPANY during the
two-year period preceding the Balance Sheet Date. The payment of such amount to
the STOCKHOLDERS shall be made to the STOCKHOLDERS, pro rata, in accordance with
their respective percentage ownership interests in the COMPANY immediately prior
to the Merger. Prior to making any such payment to the STOCKHOLDERS, the COMPANY
shall have the amount of such payment approved by HOLDING and, to the extent
payment of such amount exceeds available cash as of the Closing Date (a
"Shortfall"), HOLDING shall cause the COMPANY to make such payment to the
STOCKHOLDERS in accordance with HOLDING'S instructions (which may require that
the COMPANY draw on its line of credit to the extent of the Shortfall or receive
funds from HOLDING to the extent of the Shortfall).
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AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
NEW ENGLAND MECHANICAL ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
NEW ENGLAND MECHANICAL SERVICES, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and
Board of Directors of Surviving Corporation......................6
1.4 Certain Information With Respect to the Capital
Stock of the COMPANY, HOLDING and NEWCO..........................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING............................................................9
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................10
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........11
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................12
5.10 Liabilities and Obligations.....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................14
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......16
5.16 Real Property...................................................17
5.17 Insurance.......................................................17
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................18
5.20 Compliance with ERISA...........................................19
5.21 Conformity with Law; Litigation.................................20
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5.22 Taxes...........................................................20
5.23 No Violations...................................................23
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................25
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................26
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................27
5.32 Preemptive Rights...............................................27
5.33 Transactions with Directors, Officers and Affiliates............27
5.34 Securities Act Representations..................................28
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................30
6.1 Due Organization................................................30
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........31
6.5 Subsidiaries....................................................31
6.6 Financial Statements............................................31
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................33
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................34
6.13 Business; Real Property; Material Agreements....................34
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................37
7.1 Access and Cooperation; Due Diligence...........................37
7.2 Conduct of Business Pending Closing.............................38
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................40
7.5 Notice to Bargaining Agents.....................................40
7.6 Agreements......................................................40
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................41
7.9 Cooperation in Preparation of Registration Statement............42
7.10 Final Financial Statements......................................43
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7.11 Further Assurances..............................................43
7.12 Authorized Capital..............................................43
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................44
8.2 Performance of Obligations......................................44
8.3 No Litigation...................................................44
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................45
8.8 No Material Adverse Change......................................45
8.9 Closing of IPO..................................................45
8.10 Secretary's Certificate.........................................45
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................46
9.1 Representations and Warranties..................................46
9.2 Performance of Obligations......................................46
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................47
9.6 STOCKHOLDERS' Release...........................................47
9.7 Termination of Related Party Agreements.........................47
9.8 Opinion of Counsel..............................................47
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................48
9.12 Employment Agreements...........................................48
9.13 Closing of IPO..................................................48
9.14 FIRPTA Certificate..............................................48
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............48
10.1 Release From Guarantees; Repayment of Certain Obligations.......48
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers. .......................................49
10.4 Preservation of Employee Benefit Plans..........................49
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
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11. INDEMNIFICATION.......................................................50
11.1 General Indemnification by the STOCKHOLDERS.....................50
11.2 Indemnification by HOLDING......................................51
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................53
12. TERMINATION OF AGREEMENT..............................................54
12.1 Termination.....................................................54
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................56
13.4 Severability; Reformation.......................................56
13.5 Independent Covenant............................................56
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................57
14.3 Damages.........................................................58
14.4 Survival........................................................58
15. TRANSFER RESTRICTIONS.................................................58
15.1 Transfer Restrictions...........................................58
16. REGISTRATION RIGHTS...................................................59
16.1 Piggyback Registration Rights...................................59
16.2 Demand Registration Rights......................................60
16.3 Registration Procedures.........................................61
16.4 Underwriting Agreement..........................................61
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................62
17.1 Representations and Warranties of the COMPANY and
the STOCKHOLDERS................................................62
17.2 Representations and Warranties of the STOCKHOLDERS..............63
17.3 Representations and Warranties of HOLDING and NEWCO.............64
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18. GENERAL...............................................................65
18.1 Cooperation.....................................................65
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................66
18.5 Brokers and Agents..............................................66
18.6 Expenses........................................................66
18.7 Notices.........................................................67
18.8 Governing Law...................................................68
18.9 Exercise of Rights and Remedies.................................68
18.10 Time............................................................68
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................69
18.15 Survival of Representations and Warranties......................69
18.16 STOCKHOLDER Representative......................................69
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), NEW ENGLAND
MECHANICAL SERVICES ACQUISITION CORP., a Delaware corporation ("NEWCO"), NEW
ENGLAND MECHANICAL SERVICES, INC., a Connecticut corporation (the "COMPANY"),
and Charles P. Reagan, Dana R. Finnegan, Daniel B. Bourbeau, Gary L. Picco,
Lawrence G. Fontaine, Dennis W. Tetreault and Paul C. Gray (the "STOCKHOLDERS").
The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and Connecticut;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Air Systems, Inc., Brandt
Mechanical Services, Inc., Aircond Corporation, Energy Systems Industries, Inc.,
Lee Company, Hill York Corporation, Hill York Service Corporation and Mechanical
Services of Orlando, Inc. (collectively, the "Other Founding Companies") and
their respective stockholders in order to acquire additional providers of
commercial and industrial heating, ventilation, air conditioning, energy and
environmental services (the COMPANY, together with each of the Other Founding
Companies, are collectively referred to herein as the "Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the
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COMPANY and the stockholders and the boards of directors of each of HOLDING and
NEWCO have approved this Agreement and the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
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"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
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"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the foregoing, and any trade secret, invention,
process, know-how, computer software, technology systems, product design
or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of Connecticut.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
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"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
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"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Connecticut and stamped receipt
copies of each such filing to be delivered to HOLDING on or before the Closing
Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of Connecticut and of the Certificate
or Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and
6
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voting rights of each class of outstanding capital stock of the COMPANY, HOLDING
and NEWCO as of the date of this Agreement are as follows:
(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of Connecticut. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to
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the same extent as if said debts, liabilities and duties had been incurred or
contracted by the Surviving Corporation.
2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor; and
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
8
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3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of Connecticut in order to withdraw the Certificate of Merger and
rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
described in clauses (i) and (ii) above (the "Pre-Closing") shall take place on
the Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of
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Merger shall be or shall have been filed with the appropriate state authorities
so that they shall be or, as of 8:00 a.m. New York City time on the Closing
Date, shall become effective and the Merger shall thereby be effected, (y) all
transactions contemplated by this Agreement, including the conversion and
delivery of shares, the transmission of funds by wire in an amount equal to the
cash portion of the consideration which the STOCKHOLDERS shall be entitled to
receive pursuant to the Merger referred to in Section 3 hereof shall occur and
(z) the closing with respect to the IPO shall occur and be deemed to be
completed. The date on which the actions described in the preceding clauses (x),
(y) and (z) occurs shall be referred to as the "Closing Date." During the period
from the Pre-Closing Date to the Closing Date, this Agreement may only be
terminated by the parties if the underwriting agreement in respect of the IPO is
terminated pursuant to the terms of such underwriting agreement. This Agreement
shall in any event terminate if the Closing Date has not occurred within 15
business days of the Pre-Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now
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conducted except (i) as set forth on Schedule 5.1 or (ii) where the failure to
be so authorized or qualified would not have a material adverse effect on the
business, operations, affairs, prospects, properties, assets or condition
(financial or otherwise) of the COMPANY (as used herein with respect to the
COMPANY, or with respect to any other person, a "Material Adverse Effect").
Schedule 5.1 sets forth the jurisdiction in which the COMPANY is incorporated
and contains a list of all jurisdictions in which the COMPANY is authorized or
qualified to do business. True, complete, correct and certified copies of the
Certificate or Articles of Incorporation and By-laws, each as amended, of the
COMPANY (the "Charter Documents") are all attached to Schedule 5.1. The minute
books and stock records of the COMPANY, as heretofore made available to HOLDING,
are correct and complete in all material respects. The most recent minutes of
the COMPANY, which are dated no earlier than ten business days prior to the date
hereof, affirm and ratify all prior acts of the COMPANY and of its officers and
directors on behalf of the COMPANY to the extent any such acts are of a nature
that require action by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by the STOCKHOLDERS and were offered, issued, sold and
delivered by the COMPANY in compliance with all applicable state and Federal
laws concerning the issuance of securities. Further, none of such shares were
issued in violation of the preemptive rights of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other
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rights to acquire shares of the COMPANY's stock and a description of the
material terms of such outstanding options, warrants or other rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person or entity that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the COMPANY ("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
December 31, 1997, December 31, 1996 and December 31, 1995 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended December 31, 1997 (December 31, 1997 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of December 31, 1997, December 31, 1996 and
December 31, 1995 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
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5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities
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were incurred thereafter in the ordinary course of business consistent with past
practice and are not material either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the
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COMPANY has delivered to HOLDING an accurate list and summary description (which
is set forth on Schedule 5.12(b)) of all such licenses, franchises, permits and
other governmental authorizations held the Company, including all permits,
titles, licenses, franchises and certificates (it being understood and agreed
that a list of all environmental permits and other environmental approvals
required to be identified under this Agreement is set forth on Schedule 5.13).
To the knowledge of the COMPANY, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 5.12(b) and 5.13 are valid, and
the COMPANY has not received any notice that any governmental authority intends
to cancel, terminate or not renew any such license, franchise, permit or other
governmental authorization. The COMPANY has conducted and is conducting its
business in compliance with the requirements, standards, criteria and conditions
set forth in the licenses, franchises, permits and other governmental
authorizations listed on Schedules 5.12(b) and 5.13 and is not in violation of
any of the foregoing except where such non-compliance or violation would not
have a Material Adverse Effect. Except as specifically provided in Schedule
5.12(a) or 5.12(b), the transactions contemplated by this Agreement will not
result in the infringement by the COMPANY of any Intellectual Property right of
any other person or entity or the infringement of any Intellectual Property
listed on Schedule 5.12(a), or result in a default under or a breach or
violation of, or materially and adversely affect the rights and benefits
afforded to the COMPANY by, any licenses, franchises, permits or government
authorizations listed on Schedule 5.12(b) or Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and
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Liability Act of 1980, as amended; and (v) the COMPANY has no material
contingent liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or
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agreements listed on Schedule 5.15, and no notice of default under any such
contract or agreement has been received by the COMPANY or any of the
STOCKHOLDERS. The COMPANY has also indicated on Schedule 5.15 a summary
description of all plans or projects involving the opening of new operations,
expansion of existing operations or the acquisition of any personal property,
business or assets requiring, in any event, the payment of more than $25,000 by
the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
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insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan"
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(within the meaning of Section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) or any non-qualified deferred compensation
arrangement). For the purposes of this Agreement, the term "employee pension
benefit plan" shall have the same meaning as is given that term in Section 3(2)
of ERISA. The COMPANY does not currently maintain or contribute, and has not in
the past three years maintained or contributed, to any employee pension benefit
plan other than the plans set forth on Schedule 5.19, nor is the COMPANY
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of the COMPANY's employees, except as set forth on Schedule
5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
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(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any time was, a member of a "controlled group" (as
defined in Section 412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
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(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
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(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
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(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on minimum, environmental or other taxes,
assessments, duties, fees, levies or other governmental charges of any nature
whatsoever, whether disputed or not, together with any interest, penalties,
additions to tax or additional amounts with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
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notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
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(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
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(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any
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kind, whether express or implied, oral or written, that a Registration Statement
will become effective or that the IPO pursuant thereto will occur at a
particular price or within a particular range of prices or occur at all; (ii)
that neither HOLDING nor any of its shareholders, officers, directors, agents or
representatives nor any Underwriter shall have any liability to the COMPANY, the
STOCKHOLDERS or any other person or entity affiliated or associated with the
COMPANY for any failure of the Registration Statement to become effective, the
IPO to occur at a particular price or within a particular range of prices or to
occur at all; and (iii) that the decision of the STOCKHOLDERS to enter into this
Agreement, or to vote in favor of or consent to the proposed Merger, has been or
will be made independent of, and without reliance upon, any statements, opinions
or other communications, or due diligence investigations which have been or will
be made or performed by any prospective Underwriter, relative to HOLDING or the
prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
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immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of the COMPANY or has any material claim whatsoever against or owes any
amount to the COMPANY, except for claims in the ordinary course of business such
as for accrued vacation pay and accrued benefits under employee benefit plans.
"Family Member" as it applies to any person shall mean all relatives and their
spouses in a relationship of first cousin or closer to such person or such
person's spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has
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such knowledge and experience in financial and business matters that it (or for
those STOCKHOLDERS that are trusts, its trustee or trustees) is capable of
evaluating the merits and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION
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REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF
REQUIRED BY ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY
CORPORATION STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING. However, subject to the provisions of Section
7.8, such notification shall not relieve the STOCKHOLDER of its obligations
under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING
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Charter Documents") are all attached hereto as Annex II. Schedule 6.1 sets forth
a list of all jurisdictions in which HOLDING or NEWCO is authorized or qualified
to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold and delivered by HOLDING and NEWCO
in compliance with all applicable state and Federal laws concerning the issuance
of securities. Further, none of such shares was issued in violation of the
preemptive rights of any past or present stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which
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reflect the results of its operations from inception: HOLDING's audited Balance
Sheet as of December 31, 1997 and Statements of Income, Cash Flows and Retained
Earnings for the period from inception through December 31, 1997. Such HOLDING
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except as noted thereon or on Schedule 6.6(a)). Except as set forth
on Schedule 6.6(a), such Balance Sheet as of December 31, 1997 presents fairly
the financial position of HOLDING as of such date, and such Statements of
Income, Cash Flows and Retained Earnings present fairly the results of
operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
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(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions
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contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally issued shares of HOLDING, fully paid and nonassessable, and
with the exception of restrictions upon resale set forth in Section 15 hereof,
will be identical in all material and substantive respects to the HOLDING Stock
issued and outstanding as of the date hereof by reason of the provisions of the
Delaware GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS
pursuant to this Agreement will not be registered under the 1933 Act, except as
provided in Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
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6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
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(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue
Code as in effect prior to the Tax Reform Act of 1986, or to any
"long-term contract" within the meaning of Section 460 of the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
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(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
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requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
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(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
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(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
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7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to
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such amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent (or are
not deemed to have consented) to such amendment or supplement, this Agreement
shall be deemed terminated by mutual consent as set forth in Section 12.1(i)
hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration
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Statement). The COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if
at any time during the period in which a prospectus relating to the offering is
required to be delivered under the Securities Act, any information contained in
the prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any
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exchange or automated trading system for which application is made to register
the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
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8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre- Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
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8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or
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complied with in all material respects on or before each of the Pre-Closing Date
and the Closing Date, as the case may be; and the STOCKHOLDERS shall have
delivered to HOLDING certificates dated the Pre-Closing Date and the Closing
Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including amendments thereto), and
resolutions of the board of directors and the STOCKHOLDERS approving the
COMPANY's entering into this Agreement and the consummation of the transactions
contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date),
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substantially in the form annexed hereto as Annex VII, and covering matters
customary under the circumstances or covering such additional matters as the
Underwriters may reasonably request, and the Underwriters shall have received a
copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if applicable, that all state
franchise and/or income tax returns and taxes for the COMPANY for all periods
prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the
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COMPANY, with all such guarantees on indebtedness being assumed by HOLDING. In
the event that HOLDING cannot obtain such releases from the lenders of any such
guaranteed indebtedness on or prior to the 90th day subsequent to the Closing
Date, HOLDING shall pay off or otherwise refinance or retire such indebtedness
and, if HOLDING cannot obtain such releases on or prior to the Closing Date,
then HOLDING agrees to indemnify the STOCKHOLDERS against any and all claims
made against them by the beneficiaries of such guarantees which arise as a
result of HOLDING's failure to cause such guarantees to be released on or prior
to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the COMPANY Financial Statements) shown by
such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for
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coverage for preexisting conditions. Notwithstanding the foregoing, on or
following the Closing Date, HOLDING may require that the COMPANY freeze or
terminate any defined benefit pension plans in effect at the COMPANY at any
time, subject to applicable laws, and HOLDING shall have no obligation to
provide replacement defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the Other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its
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STOCKHOLDERS for inclusion in the Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (iv) the
matters described on Schedule 11.1(iv), (v) any Tax (in excess of all amounts
accrued therefor on the Balance Sheet included in the COMPANY Financial
Statements) relating to a period ending on or before the Closing Date (or any
portion of a period ending after the Closing Date that relates to the portion of
such period ending on the Closing Date, using the closing of the books method)
that has not been paid on or before the Closing Date, or (vi) any Tax imposed
upon or relating to any third party for a pre-Closing Date period, including,
in each case, any such Tax for which an Acquired Party may be liable under
Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local of foreign law), as a transferee or successor, by contract or
otherwise, provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii), such indemnity shall not inure to the benefit of
HOLDING, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to HOLDING's counsel and to HOLDING
for inclusion in the final prospectus, and such information was not so included
or properly delivered, and (B) that each STOCKHOLDER shall be liable for
indemnification obligations pursuant to this Section 11.1 that are attributable
to a breach of any representation, warranty or agreement made in Sections 5.31
through 5.35 by that STOCKHOLDER and not for breach of the representations,
warranties or agreements made in Sections 5.31 through 5.35 by any other
STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
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11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the defense thereof and in any settlement thereof. Such cooperation shall
include, but shall not be limited to, furnishing the Indemnifying Party with any
books, records or information reasonably requested by the Indemnifying Party
that are in the Indemnified Party's possession or control. All Indemnified
Parties shall endeavor to use the same counsel, which shall be the counsel
selected by Indemnifying Party, provided that if counsel to the Indemnifying
Party shall have a conflict of interest in the opinion of such counsel that
prevents counsel for the Indemnifying Party from representing the Indemnified
Party, the Indemnified Party shall have the right to participate in such matter
through counsel of its own choosing and the Indemnifying Party will reimburse
the Indemnified Party for the reasonable expenses of its counsel and experts.
After the Indemnifying Party has notified the Indemnified Party of its intention
to undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such
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defense, the Indemnified Party may undertake such defense through counsel of its
choice, at the cost and expense of the Indemnifying Party, and the Indemnified
Party may settle such matter, and the Indemnifying Party shall reimburse the
Indemnified Party for the amount paid in such settlement and any other
liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party, provided that nothing herein shall be
construed to limit the right of a party, in a proper case, to seek injunctive
relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this
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Section 11 if and to the extent that such person's claim for indemnification is
directly or indirectly related to a breach by such person of any representation,
warranty, covenant or other agreement set forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
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12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory");
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
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(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter and (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b), each of whom either (i) beneficially owns less than 3% of the COMPANY's
outstanding common stock or (ii) only holds shares of the Company's outstanding
preferred stock.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable damage that could be caused to HOLDING for which it
would have no other adequate remedy, each STOCKHOLDER agrees that, in the event
of any breach or threatened breach by such STOCKHOLDER, the foregoing covenant
may be enforced by HOLDING by injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
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13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that they
had in the past, currently have, and in the future may have, access to certain
confidential information of the COMPANY, the Other Founding Companies, and/or
HOLDING, such as operational policies, and pricing and cost policies that are
valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such information may be disclosed by the STOCKHOLDERS as is
required in the course of performing their duties for HOLDING or the Surviving
Corporation and (c) to counsel and other advisers, provided that such advisers
(other than counsel) agree to the confidentiality provisions of this Section
14.1, unless (i) such information becomes known to the public generally through
no fault of any of the STOCKHOLDERS, (ii) disclosure is required by law or the
order of any governmental authority under color of law, provided, that prior to
disclosing any information pursuant to this clause (ii), the STOCKHOLDERS shall
give prior written notice thereof to HOLDING and provide HOLDING with the
opportunity to contest such disclosure, or (iii) the disclosing party reasonably
believes that such disclosure is required in connection with the defense of a
lawsuit against the disclosing party. In the event of a breach or threatened
breach by any of the STOCKHOLDERS of the provisions of this Section 14, HOLDING
shall be entitled to an injunction restraining such STOCKHOLDERS from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting HOLDING from pursuing any other available
remedy for such breach or threatened breach, including the recovery of damages.
In the event the transactions contemplated by this Agreement are not
consummated, the STOCKHOLDERS shall have none of the above-mentioned
restrictions on their ability to disseminate confidential information with
respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and acknowledge that
they had in the past and currently have access to certain confidential
information of the COMPANY, such as operational policies, and pricing and cost
policies that are valuable, special and unique assets of the COMPANY's business.
HOLDING and NEWCO agree that, prior to the Pre-Closing, or if the Transactions
contemplated by this Agreement are not consummated, they will not use or
disclose such confidential information to any person, firm, corporation,
association or other entity for any purpose or reason whatsoever, except (a) to
authorized representatives of the COMPANY, (b) to counsel and other advisers,
provided that such advisors (other than counsel) agree to the confidentiality
provisions of this Section 14.2, (c) to underwriters and their counsel in
connection with the registration statement and (d) to the Other Founding
Companies and their representatives who have agreed to maintain confidentiality
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pursuant to Section 7.1(a), unless (i) such information becomes known to the
public generally through no fault of HOLDING or NEWCO, (ii) disclosure is
required by law or the order of any governmental authority under color of law,
provided, that prior to disclosing any information pursuant to this clause (ii),
HOLDING and NEWCO shall, if possible, give prior written notice thereof to the
COMPANY and the STOCKHOLDERS and provide the COMPANY and the STOCKHOLDERS with
the opportunity to contest such disclosure, or (iii) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by HOLDING or NEWCO of the provisions of this Section, the
COMPANY and the STOCKHOLDERS shall be entitled to an injunction restraining
HOLDING and NEWCO from disclosing, in whole or in part, such confidential
information. Nothing herein shall be construed as prohibiting the COMPANY and
the STOCKHOLDERS from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. Upon any termination of
this Agreement, HOLDING and NEWCO shall return all confidential information of
the Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of HOLDING Stock acquired
pursuant hereto (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions); provided, that
from and after the 24th month following the Closing Date, the STOCKHOLDER shall
be entitled to make such a Transfer of up to 50% of the number shares of HOLDING
Stock received by the
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STOCKHOLDER pursuant to the terms hereof; and, provided, further, that from and
after the 30th month following the Closing Date, the STOCKHOLDER shall be
entitled to make such a Transfer of up to 75% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof. Notwithstanding
the foregoing, (x) the STOCKHOLDER may Transfer shares of HOLDING Stock to
immediate family members (or trusts for the benefit of the STOCKHOLDER or family
members, the trustees of which so agree) (such family members and trusts are
referred to herein as "Permitted Transferees"); provided, that the family
member, trust, trustee, pledgee or other beneficiary of such Transfer,
encumbrance or pledge, as the case my be, agrees in writing prior to such
transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to Section 3
of this Agreement will bear a legend substantially in the form set forth below
and containing such other information as HOLDING may deem necessary or
appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be
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included in such registration all of the HOLDING Stock issued to the
STOCKHOLDERS pursuant to this Agreement or transferred to such Permitted
Transferees which any such STOCKHOLDER or Permitted Transferee requests be
included in such registration, provided that HOLDING shall have the right to
reduce the number of shares to be included by the STOCKHOLDER in such
registration to the extent that inclusion of such shares could, in the written
opinion of tax counsel to HOLDING or its independent auditors, jeopardize the
status of the transactions contemplated hereby and by the Registration Statement
as a tax-free organization. In addition, if the proposed offering is a firm
commitment underwritten offering and HOLDING is advised in writing in good faith
by any managing underwriter of the securities being offered that the number of
shares to be included in such registration is greater than the number of such
shares which can be offered without adversely affecting the offering, HOLDING
may reduce pro rata the number of shares offered for the accounts of such
persons (based upon the number of shares held by each such person) to a number
deemed satisfactory by such managing underwriter, provided, that, for each such
offering made by HOLDING after the IPO, such reduction shall be made first by
reducing the number of shares to be sold by persons other than HOLDING, the
STOCKHOLDERS and the stockholders of the Other Founding Companies (collectively,
the STOCKHOLDERS and the stockholders of the other Founding Companies being
referred to herein as the "Founding Stockholders"), and thereafter, if a further
reduction is required, by reducing on a pro rata basis the number of shares to
be sold by the Founding Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
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(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each
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participating holder agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between such managing underwriters
and companies of HOLDING's size and investment stature, including reasonable and
customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer or otherwise dispose of, including
without limitation through put or short sale arrangements, shares of HOLDING
Stock during the period from the effective date of the registration statement
through the 90th day following the effective date of such registration,
provided, that: (i) all directors, executive officers and holders of more than
five percent of the outstanding HOLDING Stock agree to the same restrictions;
and (ii) with respect to the first public offering of shares of HOLDING Stock
within three years following the IPO, the STOCKHOLDER shall have been afforded a
meaningful opportunity to include shares in such registration after giving
effect to any reduction by reason of underwriters' advice, unless sales by such
STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have
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run for all tax periods ended on or prior to or which include the Closing Date,
which shall be deemed to be the Expiration Date for purposes of this Section
17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as "HOLDERS") and the purchasers of
the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or Other
Agreements as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
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(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
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obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior agreement and understanding relating to the subject matter
of this Agreement. This Agreement, upon execution, constitutes a valid and
binding agreement of the parties hereto enforceable in accordance with its terms
and may be modified or amended as provided in Section 18.14 only by a written
instrument executed by the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting
through their respective officers or trustees, duly authorized by their
respective boards of directors. Any disclosure made on any Schedule delivered
pursuant hereto shall be deemed to have been disclosed for purposes of any other
Schedule required hereby, provided that the COMPANY shall make a good faith
effort to cross reference disclosure, as necessary or advisable, between related
Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be
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consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
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(b) If to the STOCKHOLDERS, addressed to them at their addresses set
forth on Annex IV, with copies to such counsel as is set forth with respect to
each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
New England Mechanical Services, Inc.
166 Tunnel Road
Vernon, CT 07066
Facsimile No.: (860) 871-9154
Attn: Charles P. Reagan
and marked "Personal and Confidential"
with copies to:
Robinson & Cole LLP
One Commercial Plaza
Hartford, CT 06103
Facsimile No.: (860) 275-8299
Attn: Jack Kennedy, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of Connecticut shall be governed thereby, in each case without reference
to its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
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18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed Charles P. Reagan (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any
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other matters concerning the transactions contemplated by this Agreement, both
before and after the Closing, and all action taken by the STOCKHOLDER
Representative hereunder shall be binding upon all of the STOCKHOLDERS, and
their respective successors, heirs, representatives and assigns as if expressly
confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
[signature page to follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
/s/ Rodney C. Gilbert
By: _________________________________
Name: Rodney C. Gilbert
Title: Chief Executive Officer
NEW ENGLAND MECHANICAL
ACQUISITION CORP.
/s/ William M. Dillard
By: _________________________________
Name: William M. Dillard
Title: President
NEW ENGLAND MECHANICAL
SERVICES, INC.
/s/ Charles P. Reagan
By: _________________________________
Name: Charles P. Reagan
Title: President
STOCKHOLDERS:
/s/ Charles P. Reagan
_____________________________________
Charles P. Reagan
/s/ Dana R. Finnegan
_____________________________________
Dana R. Finnegan
/s/ Daniel B. Bourbeau
_____________________________________
Daniel B. Bourbeau
/s/ Gary L. Picco
_____________________________________
Gary L. Picco
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/s/ Lawrence G. Fontaine
_____________________________________
Lawrence G. Fontaine
/s/ Dennis W. Tetreault
_____________________________________
Dennis W. Tetreault
/s/ Paul C. Gray
_____________________________________
Paul C. Gray
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $7,486,491 and 841,275 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING Minimum Cash*/**
----------- ---------- ----------------
<S> <C> <C>
C. Reagan 727,471 $7,440,044
D. Bourbeau 26,212 -
D. Finnegan 23,590 32,764
G. Picco 23,907 -
D. Tetreault 15,122 -
L. Fontaine 15,122 -
P. Gray 9,851 13,682
----- ------
TOTALS: 841,275 $7,486,491
</TABLE>
MINIMUM VALUE: $16,740,516 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share) plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 598,919 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of
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costs shall be reclassified from current liabilities and deducted from accounts
receivable. The "excess working capital" shall equal the amount determined from
the Closing Date Balance Sheet, which, after giving effect to the payment to the
STOCKHOLDERS of such amount, (1) does not cause the COMPANY to have a current
ratio of less than 1.33 (the current ratio being defined as the ratio of current
assets after withdrawal of all cash included in such payment to current
liabilities), (2) does not cause the COMPANY to have a debt to equity ratio of
greater than 2.25 and (3) does not have debt in excess of the average total debt
outstanding of the COMPANY during the two-year period preceding the Balance
Sheet Date. The payment of such amount to the STOCKHOLDERS shall be made to the
STOCKHOLDERS, pro rata, in accordance with their respective percentage ownership
interests in the COMPANY immediately prior to the Merger. Prior to making any
such payment to the STOCKHOLDERS, the COMPANY shall have the amount of such
payment approved by HOLDING and, to the extent payment of such amount exceeds
available cash as of the Closing Date (a "Shortfall"), HOLDING shall cause the
COMPANY to make such payment to the STOCKHOLDERS in accordance with HOLDING'S
instructions (which may require that the COMPANY draw on its line of credit to
the extent of the Shortfall or receive funds from HOLDING to the extent of the
Shortfall).
<PAGE>
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- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF ORGANIZATION
dated as of May 14, 1998
by and among
ENFINITY CORPORATION
AIR SYSTEMS ACQUISITION CORP.
(a subsidiary of Enfinity Corporation)
AIR SYSTEMS, INC.
and
the STOCKHOLDERS named herein
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. THE MERGER.............................................................6
1.1 Delivery and Filing of Articles of Merger........................6
1.2 Effective Time of the Merger.....................................6
1.3 Certificate of Incorporation, By-Laws and Board of
Directors of Surviving Corporation...............................6
1.4 Certain Information With Respect to the Capital Stock
of the COMPANY, HOLDING and NEWCO................................6
1.5 Effect of Merger.................................................7
2. CONVERSION OF STOCK....................................................8
2.1 Manner of Conversion.............................................8
3. DELIVERY OF MERGER CONSIDERATION.......................................9
4. PRE-CLOSING...........................................................10
5. REPRESENTATIONS AND WARRANTIES OF COMPANY
AND STOCKHOLDERS......................................................10
5.1 Due Organization................................................11
5.2 Authorization...................................................11
5.3 Capital Stock of the COMPANY....................................11
5.4 Transactions in Capital Stock; Organization Accounting..........12
5.5 No Bonus Shares.................................................12
5.6 Subsidiaries....................................................12
5.7 Predecessor Status; etc.........................................12
5.8 Spin-off by the COMPANY.........................................12
5.9 Financial Statements............................................13
5.10 Liabilities and Obligations.....................................13
5.11 Accounts and Notes Receivable...................................14
5.12 Intellectual Property; Permits and Intangibles..................15
5.13 Environmental Matters...........................................15
5.14 Personal Property...............................................16
5.15 Significant Customers; Material Contracts and Commitments.......17
5.16 Real Property...................................................17
5.17 Insurance.......................................................18
5.18 Compensation; Employment Agreements; Organized Labor Matters....18
5.19 Employee Plans..................................................19
5.20 Compliance with ERISA...........................................20
</TABLE>
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<TABLE>
<S> <C> <C>
5.21 Conformity with Law; Litigation.................................21
5.22 Taxes...........................................................21
5.23 No Violations...................................................24
5.24 Government Contracts............................................24
5.25 Absence of Changes..............................................24
5.26 Deposit Accounts; Powers of Attorney............................26
5.27 Validity of Obligations.........................................26
5.28 Relations with Governments......................................26
5.29 Disclosure......................................................27
5.30 Prohibited Activities...........................................27
5.31 Authority.......................................................28
5.32 Preemptive Rights...............................................28
5.33 Transactions with Directors, Officers and Affiliates............28
5.34 Securities Act Representations..................................29
5.35 Registration Statement Questionnaires...........................30
6. REPRESENTATIONS OF HOLDING and NEWCO..................................31
6.1 Due Organization................................................31
6.2 Authorization...................................................31
6.3 Capital Stock of HOLDING and NEWCO..............................31
6.4 Transactions in Capital Stock, Organization Accounting..........32
6.5 Subsidiaries....................................................32
6.6 Financial Statements............................................32
6.7 Liabilities and Obligations.....................................33
6.8 Conformity with Law; Litigation.................................33
6.9 No Violations...................................................34
6.10 Validity of Obligations.........................................34
6.11 HOLDING Stock...................................................34
6.12 Other Agreements................................................35
6.13 Business; Real Property; Material Agreements....................35
6.14 Taxes...........................................................35
6.15 Disclosure......................................................37
7. COVENANTS PRIOR TO CLOSING............................................38
7.1 Access and Cooperation; Due Diligence...........................38
7.2 Conduct of Business Pending Closing.............................39
7.3 Prohibited Activities...........................................39
7.4 No Shop.........................................................41
7.5 Notice to Bargaining Agents.....................................41
7.6 Agreements......................................................41
7.7 Notification of Certain Matters.................................41
7.8 Amendment of Schedules..........................................42
7.9 Cooperation in Preparation of Registration Statement............43
</TABLE>
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<TABLE>
<S> <C> <C>
7.10 Final Financial Statements......................................44
7.11 Further Assurances..............................................44
7.12 Authorized Capital..............................................44
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS
AND THE COMPANY.......................................................44
8.1 Representations and Warranties..................................45
8.2 Performance of Obligations......................................45
8.3 No Litigation...................................................45
8.4 Opinions of Counsel.............................................45
8.5 Registration Statement..........................................45
8.6 Consents and Approvals..........................................45
8.7 Good Standing Certificates......................................46
8.8 No Material Adverse Change......................................46
8.9 Closing of IPO..................................................46
8.10 Secretary's Certificate.........................................46
8.11 Employment Agreements...........................................46
8.12 Director Indemnification........................................46
8.13 Chief Executive Officer.........................................46
9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND
NEWCO.................................................................47
9.1 Representations and Warranties..................................47
9.2 Performance of Obligations......................................47
9.3 No Litigation...................................................47
9.4 Secretary's Certificate.........................................47
9.5 No Material Adverse Change......................................48
9.6 STOCKHOLDERS' Release...........................................48
9.7 Termination of Related Party Agreements.........................48
9.8 Opinion of Counsel..............................................48
9.9 Consents and Approvals..........................................48
9.10 Good Standing Certificates......................................48
9.11 Registration Statement..........................................49
9.12 Employment Agreements...........................................49
9.13 Closing of IPO..................................................49
9.14 FIRPTA Certificate..............................................49
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING...............49
10.1 Release From Guarantees; Repayment of Certain Obligations.......49
10.2 Preparation and Filing of Tax Returns...........................49
10.3 Directors and Officers..........................................50
10.4 Preservation of Employee Benefit Plans..........................50
10.5 Director Indemnification........................................50
10.6 HOLDING Options.................................................50
</TABLE>
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<TABLE>
<S> <C> <C>
11. INDEMNIFICATION.......................................................51
11.1 General Indemnification by the STOCKHOLDERS.....................51
11.2 Indemnification by HOLDING......................................52
11.3 Third Person Claims.............................................52
11.4 Exclusive Remedy................................................53
11.5 Limitations on Indemnification..................................54
12. TERMINATION OF AGREEMENT..............................................55
12.1 Termination.....................................................55
12.2 Liabilities in Event of Termination.............................55
13. NONCOMPETITION........................................................55
13.1 Prohibited Activities...........................................55
13.2 Damages.........................................................56
13.3 Reasonable Restraint............................................57
13.4 Severability; Reformation.......................................57
13.5 Independent Covenant............................................57
13.6 Materiality.....................................................57
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............................57
14.1 STOCKHOLDERS....................................................57
14.2 HOLDING and NEWCO...............................................58
14.3 Damages.........................................................59
14.4 Survival........................................................59
15. TRANSFER RESTRICTIONS.................................................59
15.1 Transfer Restrictions...........................................59
16. REGISTRATION RIGHTS...................................................60
16.1 Piggyback Registration Rights...................................60
16.2 Demand Registration Rights......................................61
16.3 Registration Procedures.........................................62
16.4 Underwriting Agreement..........................................62
16.5 Availability of Rule 144........................................62
16.6 Market Standoff.................................................62
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE
ORGANIZATION..........................................................63
17.1 Representations and Warranties of the COMPANY and
the STOCKHOLDERS................................................63
17.2 Representations and Warranties of the STOCKHOLDERS..............64
17.3 Representations and Warranties of HOLDING and NEWCO.............65
</TABLE>
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<TABLE>
<S> <C> <C>
18. GENERAL...............................................................66
18.1 Cooperation.....................................................66
18.2 Successors and Assigns..........................................66
18.3 Entire Agreement................................................66
18.4 Counterparts....................................................67
18.5 Brokers and Agents..............................................67
18.6 Expenses........................................................67
18.7 Notices.........................................................68
18.8 Governing Law...................................................69
18.9 Exercise of Rights and Remedies.................................69
18.10 Time............................................................69
18.11 Reformation and Severability....................................69
18.12 Remedies Cumulative.............................................69
18.13 Captions........................................................69
18.14 Amendments and Waivers..........................................70
18.15 Survival of Representations and Warranties......................70
18.16 STOCKHOLDER Representative......................................70
</TABLE>
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LIST OF ANNEXES
ANNEX I FORM OF ARTICLES OF MERGER
ANNEX II CERTIFICATE OF INCORPORATION AND BY-LAWS OF HOLDING AND NEWCO
ANNEX III CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
ANNEX IV STOCKHOLDERS AND STOCK OWNERSHIP OF THE COMPANY
ANNEX V STOCKHOLDERS AND STOCK OWNERSHIP OF HOLDING
ANNEX VI FORM OF OPINION OF COUNSEL TO HOLDING
ANNEX VII FORM OF OPINION OF COUNSEL TO THE COMPANY AND THE STOCKHOLDERS
ANNEX VIII FORM OF TAX OPINION
ANNEX IX FORM OF STOCK OPTION AND CONVERSION AGREEMENT
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AGREEMENT AND PLAN OF ORGANIZATION
THIS AGREEMENT AND PLAN OF ORGANIZATION is made as of May 14, 1998, by and
among ENFINITY CORPORATION, a Delaware corporation ("HOLDING"), AIR SYSTEMS
ACQUISITION CORP., a Delaware corporation ("NEWCO"), AIR SYSTEMS, INC., a
California corporation (the "COMPANY"), and JOHN DAVIS and ART WILLIAMS (the
"STOCKHOLDERS"). The STOCKHOLDERS are all the stockholders of the COMPANY.
WHEREAS, NEWCO is a corporation duly organized and existing under the laws
of the State of Delaware, having been incorporated on December 22, 1997, solely
for the purpose of completing the transactions set forth herein, and is a
wholly-owned subsidiary of HOLDING;
WHEREAS, the respective Boards of Directors of NEWCO and the COMPANY
(which together are hereinafter collectively referred to as the "Constituent
Corporations") deem it advisable and in the best interests of the Constituent
Corporations and their respective stockholders that NEWCO merge with and into
the COMPANY pursuant to this Agreement and the applicable provisions of the laws
of the States of Delaware and California;
WHEREAS, HOLDING is entering into other separate agreements substantially
similar to this Agreement (the "Other Agreements"), each of which is entitled
"Agreement and Plan of Organization," with each of Brandt Mechanical Services,
Inc., Aircond Corporation, Energy Systems Industries, Inc., New England
Mechanical Services, Inc., Lee Company, Hill York Corporation, Hill York Service
Corporation and Mechanical Services of Orlando, Inc. (collectively, the "Other
Founding Companies") and their respective stockholders in order to acquire
additional providers of commercial and industrial heating, ventilation, air
conditioning, energy and environmental services (the COMPANY, together with each
of the Other Founding Companies, are collectively referred to herein as the
"Founding Companies");
WHEREAS, this Agreement, the Other Agreements and the IPO (as hereinafter
defined) of HOLDING Stock (as hereinafter defined) constitute the "HOLDING Plan
of Organization;"
WHEREAS, the Boards of Directors of HOLDING, NEWCO, each of the Founding
Companies and each of the subsidiaries of HOLDING that have been formed for the
purpose of merging with the Other Founding Companies have approved and adopted
the HOLDING Plan of Organization as an integrated plan to transfer the capital
stock of the Founding Companies to HOLDING and the cash raised in the IPO of
HOLDING Stock to HOLDING as a transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, in consideration of the agreements of the Other Founding
Companies pursuant to the Other Agreements, the STOCKHOLDERS and the Board of
Directors of the COMPANY and the stockholders and the boards of directors of
each of HOLDING and NEWCO have approved this Agreement and the transactions
contemplated hereby.
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NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties, provisions and covenants herein
contained, the parties hereto hereby agree as follows:
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule attached hereto and not otherwise defined herein
shall have the following meanings for all purposes of this Agreement:
"Acquired Party" has the meaning set forth in Section 5.22(i).
"Acquisition Companies" means NEWCO and each of the other Delaware
companies wholly-owned by HOLDING prior to the Closing Date.
"Affiliates" has the meaning set forth in Section 5.8.
"Agreement" means this Agreement and Plan of Organization.
"A/R Aging Reports" has the meaning set forth in Section 5.11.
"Articles of Merger" means those Articles or Certificates of Merger
with respect to the Merger substantially in the form[s] attached as Annex
I hereto or with such changes therein as may be required by applicable
state laws.
"Balance Sheet Date" has the meaning set forth in Section 5.9.
"Charter Documents" has the meaning set forth in Section 5.1.
"Closing Date" has the meaning set forth in Section 4.
"Code" has the meaning set forth in the fifth recital of this
Agreement.
"COMPANY" has the meaning set forth in the first paragraph of this
Agreement.
"COMPANY Financial Statements" has the meaning set forth in Section
5.9.
"COMPANY Stock" has the meaning set forth in Section 2.1.
"Constituent Corporations" has the meaning set forth in the second
recital of this Agreement.
"Delaware GCL" has the meaning set forth in Section 1.5.
"Demand Registration" has the meaning set forth in Section 16.2.
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"Effective Time of the Merger" means the time as of which the Merger
becomes effective, which the parties hereto contemplate to occur on the
Closing Date.
"employee pension benefit plan" has the meaning set forth in Section
5.19.
"Environmental Laws" has the meaning set forth in Section 5.13.
"ERISA" has the meaning set forth in Section 5.19.
"Expiration Date" has the meaning set forth in Section 5(A) and in
Sections 17.1, 17.2 and 17.3.
"Family Member" has the meaning set forth in Section 5.33.
"Founding Companies" has the meaning set forth in the third recital
of this Agreement.
"Founding Stockholders" has the meaning set forth in Section 16.1.
"HOLDING" has the meaning set forth in the first paragraph of this
Agreement.
"HOLDING Charter Documents" has the meaning set forth in Section
6.1.
"HOLDING Documents" has the meaning set forth in Section 6.9.
"HOLDING Financial Statements" has the meaning set forth in Section
6.6.
"HOLDING Plan of Organization" has the meaning set forth in the
fourth recital of this Agreement.
"HOLDING Relevant Group" has the meaning set forth in Section 6.14.
"HOLDING Stock" means the common stock, par value $.01 per share, of
HOLDING.
"Indemnification Threshold" has the meaning set forth in Section
11.5.
"Indemnified Party" has the meaning set forth in Section 11.3.
"Indemnifying Party" has the meaning set forth in Section 11.3.
"Intellectual Property" means all trademarks, service marks, trade
dress, trade names, patents and copyrights and any registration or
application for any of the
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foregoing, and any trade secret, invention, process, know-how, computer
software, technology systems, product design or product packaging.
"IPO" means the initial public offering of HOLDING Stock pursuant to
the Registration Statement.
"Material Adverse Effect" has the meaning set forth in Section 5.1.
"Material Documents" has the meaning set forth in Section 5.23.
"Merger" means the merger of NEWCO with and into the COMPANY
pursuant to this Agreement and the applicable provisions of the laws of
the State of Delaware and the State of California.
"Multiemployer Plan" has the meaning set forth in Section 5.19.
"NEWCO" has the meaning set forth in the first paragraph of this
Agreement.
"NEWCO Stock" means the common stock, par value $.01 per share, of
NEWCO.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Other Agreements" has the meaning set forth in the third recital of
this Agreement.
"Other Founding Companies" has the meaning set forth in the third
recital of this Agreement.
"Pre-Closing" has the meaning set forth in Section 4.
"Pre-Closing Date" has the meaning set forth in Section 4.
"Pricing" means the date of determination by HOLDING and the
Underwriters of the public offering price of the shares of HOLDING Stock
in the IPO; the parties hereto contemplate that the Pricing shall take
place on or immediately prior to the Pre-Closing Date.
"Proposed Transaction" has the meaning set forth in Section 17.
"Qualified Plans" has the meaning set forth in Section 5.20.
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"Registration Statement" means that certain registration statement
of HOLDING to be filed on Form S-1 covering the shares of HOLDING Stock to
be issued in the IPO.
"Relevant Group" has the meaning set forth in Section 5.22(i).
"Returns" has the meaning set forth at the end of Section 5.22.
"Schedule" means each Schedule attached hereto, which shall
reference the relevant sections of this Agreement, on which parties hereto
disclose information as part of their respective representations,
warranties and covenants.
"SEC" means the United States Securities and Exchange Commission.
"Statutory Liens" has the meaning set forth in Section 7.3.
"STOCKHOLDER Representative" has the meaning set forth in Section
18.16.
"STOCKHOLDERS" has the meaning set forth in the first paragraph of
this Agreement.
"Surviving Corporation" shall mean the COMPANY as the surviving
party in the Merger.
"Tax" or "Taxes" has the meaning set forth at the end of Section
5.22.
"Tax Losses" has the meaning set forth in Section 5.22 (xvi).
"Taxing Authority" has the meaning set forth at the end of Section
5.22.
"Territory" has the meaning set forth in Section 13.1.
"Third Person" has the meaning set forth in Section 11.3.
"Transfer" has the meaning set forth in Section 15.1.
"Transfer Taxes" has the meaning set forth in Section 18.6.
"Underwriters" means the prospective underwriters in the IPO, as
identified in the Registration Statement.
"Underwriting Agreement" means the Underwriting Agreement to be
dated the Pre-Closing Date between the Underwriters and the Company in
respect of the IPO.
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1. THE MERGER
1.1 Delivery and Filing of Articles of Merger. Subject to Section 8
hereof, the Constituent Corporations will cause the Articles of Merger to be
signed, verified and filed with the Secretary of State of the State of Delaware
and the Secretary of State of the State of California and stamped receipt copies
of each such filing to be delivered to HOLDING on or before the Closing Date.
1.2 Effective Time of the Merger. At the Effective Time of the Merger,
NEWCO shall be merged with and into the COMPANY in accordance with the Articles
of Merger, the separate existence of NEWCO shall cease and the COMPANY shall be
the surviving party in the Merger. The COMPANY is sometimes hereinafter referred
to as the "Surviving Corporation". The Merger will be effected in a single
transaction.
1.3 Certificate of Incorporation, By-Laws and Board of Directors of
Surviving Corporation. At the Effective Time of the Merger:
(i) the Certificate or Articles of Incorporation of the COMPANY then
in effect shall be the Certificate or Articles of Incorporation of the
Surviving Corporation until changed as provided by law;
(ii) the By-Laws of the COMPANY then in effect shall be the By-Laws
of the Surviving Corporation until amended as provided by law;
(iii) the Board of Directors of the Surviving Corporation shall
consist of the persons who are listed on Schedule 1.3 hereto; the Board of
Directors of the Surviving Corporation shall hold office subject to the
provisions of the laws of the State of California and of the Certificate
or Articles of Incorporation and By-Laws of the Surviving Corporation; and
(iv) the officers of the COMPANY immediately prior to the Effective
Time of the Merger shall continue as the officers of the Surviving
Corporation in the same capacity or capacities and, effective upon the
Effective Time of the Merger, Rodney C. Gilbert shall be appointed as a
vice president and as an assistant secretary of the Surviving Corporation,
each of such officers to serve, subject to the provisions of the
Certificate or Articles of Incorporation and By-Laws of the Surviving
Corporation, until his or her successor is duly elected and qualified.
1.4 Certain Information With Respect to the Capital Stock of the COMPANY,
HOLDING and NEWCO. The respective designations and numbers of outstanding shares
and voting rights of each class of outstanding capital stock of the COMPANY,
HOLDING and NEWCO as of the date of this Agreement are as follows:
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(i) as of the date of this Agreement, the authorized and outstanding
capital stock of the COMPANY is as set forth on Schedule 1.4 hereto;
(ii) immediately prior to the Closing Date, the authorized capital
stock of HOLDING will consist of 49,000,000 shares of HOLDING Stock, of
which the number of issued and outstanding shares will be set forth in the
Registration Statement, and 500,000 shares of preferred stock, $.01 par
value, of which no shares will be issued and outstanding; and
(iii) as of the date of this Agreement, the authorized capital stock
of NEWCO consists of 3,000 shares of NEWCO Stock, of which ten (10) shares
are issued and outstanding.
1.5 Effect of Merger. At the Effective Time of the Merger, the effect of
the Merger shall be as provided in the applicable provisions of the General
Corporation Law of the State of Delaware (the "Delaware GCL") and the corporate
law of the State of California. Except as herein specifically set forth, the
identity, existence, purposes, powers, objects, franchises, privileges, rights
and immunities of the COMPANY shall continue unaffected and unimpaired by the
Merger and the corporate franchises, existence and rights of NEWCO shall be
merged with and into the COMPANY, and the COMPANY, as the Surviving Corporation,
shall be fully vested therewith. At the Effective Time of the Merger, the
separate existence of NEWCO shall cease and, in accordance with the terms of
this Agreement, the Surviving Corporation shall possess all the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all Taxes, including
those due and owing and those accrued, and all other choses in action, and all
and every other interest of or belonging to or due to the COMPANY and NEWCO
shall be taken and deemed to be transferred to, and vested in, the Surviving
Corporation without further act or deed; and all property, rights and
privileges, powers and franchises and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of the COMPANY and NEWCO; and the title to any real estate, or interest therein,
whether by deed or otherwise, vested in the COMPANY and NEWCO under the laws of
the state of incorporation of each thereof, shall not revert or be in any way
impaired by reason of the Merger. Except as otherwise provided herein, the
Surviving Corporation shall thenceforth be responsible and liable for all the
liabilities and obligations of the COMPANY and NEWCO and any claim existing, or
action or proceeding pending, by or against the COMPANY or NEWCO may be
prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
upon the property of the COMPANY or NEWCO shall be impaired or enlarged by the
Merger, and all debts, liabilities and duties of the COMPANY and NEWCO shall
attach to the Surviving Corporation and may be enforced against the Surviving
Corporation to the same extent as if said debts, liabilities and duties had been
incurred or contracted by the Surviving Corporation.
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2. CONVERSION OF STOCK
2.1 Manner of Conversion. The manner of converting the shares of (i)
outstanding capital stock of the COMPANY ("COMPANY Stock") and (ii) NEWCO Stock,
issued and outstanding immediately prior to the Effective Time of the Merger,
respectively, into shares of (x) HOLDING Stock and cash and (y) common stock of
the Surviving Corporation, respectively, shall be as follows:
As of the Effective Time of the Merger:
(i) all of the shares of COMPANY Stock issued and outstanding
immediately prior to the Effective Time of the Merger, by virtue of the
Merger and without any further action on the part of the holder thereof,
automatically shall be deemed to represent, with respect to each
STOCKHOLDER, (1) the right to receive the number of shares of HOLDING
Stock set forth on Annex III hereto with respect to such STOCKHOLDER and
(2) the right to receive the amount of cash set forth on Annex III hereto
with respect to such STOCKHOLDER;
(ii) all shares of COMPANY Stock that are held by the COMPANY as
treasury stock shall be canceled and retired and no shares of HOLDING
Stock or other consideration shall be delivered or paid in exchange
therefor;
(iii) each share of NEWCO Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of HOLDING, automatically be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation, which shall constitute all of the issued and
outstanding shares of common stock of the Surviving Corporation
immediately after the Effective Time of the Merger.
All HOLDING Stock received by the STOCKHOLDERS pursuant to this Agreement
shall, except for restrictions on resale or transfer described in Section 15
hereof, have the same rights as all the other shares of outstanding HOLDING
Stock by reason of the provisions of the Certificate of Incorporation of HOLDING
or as otherwise provided by the Delaware GCL. All voting rights of such HOLDING
Stock received by the STOCKHOLDERS shall be fully exercisable by the
STOCKHOLDERS, and the STOCKHOLDERS shall not be deprived nor restricted in
exercising those rights. At the Effective Time of the Merger, HOLDING shall have
no class of capital stock issued and outstanding other than the HOLDING Stock.
2.2 Assumption and Conversion of Stock Options. (a) At the Effective Time
of the Merger, each outstanding option (a "Stock Option") to purchase COMPANY
Stock listed on Schedule 5.4, whether or not then exercisable or vested, and all
obligations of the COMPANY with respect to such Stock Options shall be assumed
by HOLDING and shall constitute an option
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to acquire HOLDING Stock in accordance with the terms and provisions of that
certain Stock Option Assumption and Conversion Agreement, substantially in the
form of Annex IX.
(b) HOLDING shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HOLDING Stock for issuance upon
exercise of the Stock Option.
(c) Subject to the provisions of the 1933 Act, and the rules and
regulations thereunder, HOLDING shall file a Registration Statement on Form S-8
(or any successor form) with respect to the shares of HOLDING Stock issuable
upon exercise of the Stock Options as soon as reasonably practicable following
the Closing Date, and shall use its reasonable efforts to maintain the
effectiveness of such Registration Statement for so long as the Stock Options
remain outstanding.
3. DELIVERY OF MERGER CONSIDERATION
3.1 On the Closing Date the STOCKHOLDERS, who are the holders of all
outstanding certificates representing shares of COMPANY Stock, shall, upon
surrender of such certificates, receive (i) the respective number of shares of
HOLDING Stock and (ii) the amount of cash, in each case as set forth on Annex
III hereto with respect to such STOCKHOLDER. The cash payable pursuant to clause
(ii) shall be paid by wire transfer to an account designated by each
STOCKHOLDER.
3.2 The STOCKHOLDERS shall deliver in trust to Morgan, Lewis & Bockius
LLP, counsel to HOLDING, at the Pre-Closing the certificates representing
COMPANY Stock, duly endorsed in blank by the STOCKHOLDERS, or accompanied by
stock powers duly endorsed in blank, with signatures guaranteed by a national or
state chartered bank or other financial institution, and with all necessary
Transfer Tax and other revenue stamps, acquired at the STOCKHOLDERS' expense,
affixed and canceled. To the extent reasonably required, the STOCKHOLDERS agree
promptly to cure any deficiencies with respect to the endorsement of the stock
certificates or other documents of conveyance with respect to such COMPANY Stock
or with respect to the stock powers accompanying any COMPANY Stock. Upon
consummation of the IPO and the transactions contemplated to occur on the
Closing Date (including, without limitation, the tender to each STOCKHOLDER (or
to its agent) of the shares and cash set forth on Annex III hereto), all of such
certificates shall be deemed released and surrendered by such counsel to HOLDING
without any further action on the part of the STOCKHOLDERS or such counsel.
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4. PRE-CLOSING
At or prior to the Pricing, the parties shall take all actions necessary
to prepare to (i) effect the Merger (including the advance filing with the
appropriate state authorities of the Articles of Merger, which shall become
effective at the Effective Time of the Merger) and (ii) effect the conversion
and delivery of shares referred to in Section 3 hereof; provided, that such
actions shall not include the actual completion of the Merger for purposes of
this Agreement or the conversion and delivery of the shares and transmission of
funds by wire referred to in Section 3 hereof, each of which actions shall only
be taken upon the Closing Date as herein provided. In the event that there is no
Closing Date or this Agreement terminates for any reason, HOLDING hereby
covenants and agrees to do all things required by Delaware law and all things
which counsel for the COMPANY advise HOLDING are required by applicable laws of
the State of California in order to withdraw the Certificate of Merger and
rescind any merger or other actions effected by the advance filing of the
Articles of Merger as described in this Section. The taking of the actions
described in clauses (i) and (ii) above (the "Pre-Closing") shall take place on
the Pre-Closing date (the "Pre-Closing Date") at the offices of Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, New York 10178. On the Closing Date (x)
the Articles of Merger shall be or shall have been filed with the appropriate
state authorities so that they shall be or, as of 8:00 a.m. New York City time
on the Closing Date, shall become effective and the Merger shall thereby be
effected, (y) all transactions contemplated by this Agreement, including the
conversion and delivery of shares, the transmission of funds by wire in an
amount equal to the cash portion of the consideration which the STOCKHOLDERS
shall be entitled to receive pursuant to the Merger referred to in Section 3
hereof shall occur and (z) the closing with respect to the IPO shall occur and
be deemed to be completed. The date on which the actions described in the
preceding clauses (x), (y) and (z) occurs shall be referred to as the "Closing
Date." During the period from the Pre-Closing Date to the Closing Date, this
Agreement may only be terminated by the parties if the underwriting agreement in
respect of the IPO is terminated pursuant to the terms of such underwriting
agreement. This Agreement shall in any event terminate if the Closing Date has
not occurred within 15 business days of the Pre-Closing Date.
Time is of the essence.
5. REPRESENTATIONS AND WARRANTIES OF COMPANY AND STOCKHOLDERS
(A) Representations and Warranties of COMPANY and STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section 5(A) are true at the date of this
Agreement and that such representations and warranties shall survive the Closing
Date until January 31, 1999 (the "Expiration Date"), except that (i) the
representations and warranties set forth in Section 5.22 hereof shall survive
until such time as the statute of limitations period has run for all tax periods
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ended on, prior to or which include the Closing Date, which shall be deemed to
be the Expiration Date for Section 5.22, and (ii) solely for purposes of Section
11.1(iii) hereof and solely to the extent that, in connection with the IPO,
HOLDING actually incurs liability under the 1933 Act, the 1934 Act or any other
Federal or state securities laws, the representations and warranties set forth
herein shall survive until the expiration of any applicable statute of
limitations period, which shall be deemed to be the Expiration Date for such
purposes. For purposes of this Section 5, the term "COMPANY" shall mean and
refer to the COMPANY and all of its subsidiaries, if any, unless the context
specifically requires otherwise. Notwithstanding the foregoing, no
representations and warranties in Section 5.1 through 5.30, the fourth through
seventh sentences of Section 5.33 or in Section 5.35 are made by any of the
STOCKHOLDERS listed on Schedule 5(A), each of whom either (i) beneficially owns
less than 3% of the COMPANY's outstanding common stock or (ii) only holds shares
of the Company's outstanding preferred stock.
5.1 Due Organization. The COMPANY is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted except (i) as set
forth on Schedule 5.1 or (ii) where the failure to be so authorized or qualified
would not have a material adverse effect on the business, operations, affairs,
prospects, properties, assets or condition (financial or otherwise) of the
COMPANY (as used herein with respect to the COMPANY, or with respect to any
other person, a "Material Adverse Effect"). Schedule 5.1 sets forth the
jurisdiction in which the COMPANY is incorporated and contains a list of all
jurisdictions in which the COMPANY is authorized or qualified to do business.
True, complete, correct and certified copies of the Certificate or Articles of
Incorporation and By-laws, each as amended, of the COMPANY (the "Charter
Documents") are all attached to Schedule 5.1. The minute books and stock records
of the COMPANY, as heretofore made available to HOLDING, are correct and
complete in all material respects. The most recent minutes of the COMPANY, which
are dated no earlier than ten business days prior to the date hereof, affirm and
ratify all prior acts of the COMPANY and of its officers and directors on behalf
of the COMPANY to the extent any such acts are of a nature that require action
by or the approval of the COMPANY's Board of Directors.
5.2 Authorization. (i) The representatives of the COMPANY executing this
Agreement have the authority to enter into and bind the COMPANY to the terms of
this Agreement and (ii) the COMPANY has the corporate right, power and authority
to enter into this Agreement and the Merger. Certified copies of any required
approval of the shareholders and the Board of Directors of the COMPANY are
described on Schedule 5.2 and are attached thereto.
5.3 Capital Stock of the COMPANY. The authorized capital stock of the
COMPANY is as set forth in Section 1.4(i). All of the issued and outstanding
shares of capital stock of the COMPANY are owned by the STOCKHOLDERS in the
amounts set forth in Annex IV. Except as set forth on Schedule 5.3, all of the
issued and outstanding shares of capital stock of the COMPANY have been duly
authorized and validly issued, are fully paid and
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nonassessable, are owned of record and beneficially by the STOCKHOLDERS and were
offered, issued, sold and delivered by the COMPANY in compliance with all
applicable state and Federal laws concerning the issuance of securities.
Further, none of such shares were issued in violation of the preemptive rights
of any past or present stockholder.
5.4 Transactions in Capital Stock; Organization Accounting. Except as set
forth on Schedule 5.4, the COMPANY has not acquired any COMPANY Stock since
January 1, 1994. Except as set forth on Schedule 5.4, (i) no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
COMPANY to issue any of its authorized but unissued capital stock or its
treasury stock; (ii) the COMPANY has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any of its equity securities or any
interests therein or to pay any dividend or make any distribution in respect
thereof; and (iii) neither the voting stock structure of the COMPANY nor the
relative ownership of shares among any of its respective stockholders has been
altered or changed in contemplation of the Merger and/or the HOLDING Plan of
Organization. Schedule 5.4 also includes complete and accurate copies of all
stock option or stock purchase plans, including a list of all outstanding
options, warrants or other rights to acquire shares of the COMPANY's stock and a
description of the material terms of such outstanding options, warrants or other
rights.
5.5 No Bonus Shares. Except as set forth on Schedule 5.5, none of the
shares of COMPANY Stock was issued pursuant to awards, grants or bonuses.
5.6 Subsidiaries. Schedule 5.6 attached hereto lists the name of each of
the COMPANY's subsidiaries and sets forth the number and class of the authorized
capital stock of each of the COMPANY's subsidiaries and the number of shares of
each of the COMPANY's subsidiaries which are issued and outstanding, all of
which shares (except as set forth on Schedule 5.6) are owned beneficially and of
record by the COMPANY, free and clear of all liens, security interests, pledges,
charges, voting trusts, equities, restrictions, encumbrances and claims of every
kind. Except as set forth in Schedule 5.6, the COMPANY does not presently own,
of record or beneficially, or control, directly or indirectly, any capital
stock, securities convertible into capital stock or any other equity interest in
any corporation, association or business entity nor is the COMPANY, directly or
indirectly, a participant in any joint venture, partnership or other
non-corporate entity.
5.7 Predecessor Status; etc. Set forth on Schedule 5.7 is a list of all
names of all predecessor companies of the COMPANY, including the names of any
entities acquired by the COMPANY (by stock purchase, merger or otherwise) or
owned by the COMPANY or from whom the COMPANY previously acquired material
assets. Except as disclosed on Schedule 5.7, the COMPANY has not been a
subsidiary or division of another corporation or a part of an acquisition which
was later rescinded.
5.8 Spin-off by the COMPANY. Except as set forth on Schedule 5.8, there
has not been any sale, spin-off or split-up of material assets of either the
COMPANY or any other person
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or entity that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the COMPANY
("Affiliates") since January 1, 1994.
5.9 Financial Statements. Attached to Schedule 5.9 are copies of the
following financial statements of the COMPANY (the "COMPANY Financial
Statements"): the COMPANY's audited Consolidated Balance Sheet as of each of
February 28, 1998, February 28, 1997 and February 29, 1996 and the Consolidated
Statements of Income, Cash Flows and Retained Earnings for each of the years in
the three-year period ended February 28, 1998 (February 28, 1998 being
hereinafter referred to as the "Balance Sheet Date"). Such Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
thereon or on Schedule 5.9). Except as set forth on Schedule 5.9, such
Consolidated Balance Sheets as of February 28, 1998, February 28, 1997 and
February 29, 1996 present fairly in all material respects the financial position
of the COMPANY as of the dates indicated thereon, and such Consolidated
Statements of Income, Cash Flows and Retained Earnings present fairly in all
material respects the results of operations and cash flows for the periods
indicated thereon.
5.10 Liabilities and Obligations. (a) The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.10) of (i) all liabilities of
the COMPANY which are not reflected on the balance sheet of the COMPANY at the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date, (ii) any material liabilities of the COMPANY (including
but not limited to all liabilities in excess of $10,000) that are not reflected
on the balance sheet of the COMPANY at the Balance Sheet Date or otherwise
reflected in the COMPANY Financial Statements at the Balance Sheet Date (but
excluding trade payables incurred since the Balance Sheet Date in the ordinary
course of business consistent with past practice) and (iii) all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements to which the COMPANY is a party. Except as set forth on
Schedule 5.10, since the Balance Sheet Date, the COMPANY has not incurred any
material liabilities of any kind, character and description, whether accrued,
absolute, secured or unsecured, contingent or otherwise, other than trade
payables incurred in the ordinary course of business consistent with past
practice.
(b) The COMPANY has also set forth on Schedule 5.10, in the case of those
contingent liabilities related to pending or, to the knowledge of the COMPANY,
threatened litigation, or other liabilities which are not fixed or are being
contested, the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
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(c) name of claimant and all other parties to the claim,
suit or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending;
(iii) the date such claim, suit or proceeding was instituted; and
(iv) a good faith and reasonable estimate of the maximum amount, if
any, which is likely to become payable with respect to each
such liability. If no estimate is provided, the estimate shall
for purposes of this Agreement be deemed to be zero.
(c) The COMPANY and the STOCKHOLDERS shall have no liability pursuant to
Section 11 for any inadvertent omission of liabilities from Schedule 5.10 if (i)
such liabilities are reflected in the balance sheet of the COMPANY as of the
Balance Sheet Date or otherwise reflected in the COMPANY Financial Statements at
the Balance Sheet Date or (ii) such liabilities were incurred thereafter in the
ordinary course of business consistent with past practice and are not material
either individually or in the aggregate.
5.11 Accounts and Notes Receivable. The COMPANY has delivered to HOLDING
an accurate list (which is set forth on Schedule 5.11) of the accounts and notes
receivable of the COMPANY, as of the Balance Sheet Date, including any such
amounts which are not reflected in the balance sheet as of the Balance Sheet
Date, and including receivables from and advances to employees and the
STOCKHOLDERS. Within ten (10) days prior to Pre-Closing, the COMPANY shall
provide HOLDING (x) an accurate list of all outstanding receivables obtained
subsequent to the Balance Sheet Date and (y) an aging of all such accounts and
notes receivable showing amounts due in 30 day aging categories (the "A/R Aging
Reports"). Except to the extent reflected on Schedule 5.11 or as disclosed by
the COMPANY to HOLDING in a writing accompanying the A/R Aging Reports, as the
case may be, the accounts, notes and other receivables shown on Schedule 5.11
and on the A/R Aging Reports are and shall be, and the COMPANY has no reason to
believe that any such account receivable is not or shall not be, collectible in
the amounts shown (in the case of the accounts and notes receivable set forth on
Schedule 5.11, net of reserves reflected in the Balance Sheet and, in the case
of the accounts and notes receivable set forth in the A/R Aging Reports, net of
reserves reflected in the A/R Aging Reports). The COMPANY and the STOCKHOLDERS
shall have no liability pursuant to Section 11 for any inadvertent omission of
accounts and notes receivable from Schedule 5.11 or the A/R Aging Reports if (i)
such accounts and notes receivable are reflected in the balance sheet of the
COMPANY as of the Balance Sheet Date or (ii) such accounts and notes receivable
were obtained thereafter in the ordinary course of business consistent with past
practice and such omissions are not material, either individually or in the
aggregate.
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5.12 Intellectual Property; Permits and Intangibles. (a) The COMPANY owns
or has a valid license to use all Intellectual Property the absence of any of
which is reasonably likely to have a Material Adverse Effect, and the COMPANY
has delivered to HOLDING an accurate list (which is set forth on Schedule
5.12(a)) of all Intellectual Property owned or used by the COMPANY. Each item of
Intellectual Property owned by the COMPANY is owned free and clear of all Liens
and each other item of Intellectual Property used by the COMPANY is licensed to
the COMPANY pursuant to a license agreement that is valid and in full force and
effect. Except as set forth on Schedule 5.12(a), all right, title and interest
in and to each item of Intellectual Property is owned by the COMPANY and is not
subject to any license, royalty arrangement or any pending or, to the COMPANY's
knowledge, threatened claim or dispute. None of the Intellectual Property owned
or, to the COMPANY's knowledge, none of the Intellectual Property used by the
COMPANY nor any product sold by the COMPANY infringes any Intellectual Property
right of any other person or entity and, to the COMPANY's knowledge, no
Intellectual Property owned by the COMPANY is infringed upon by any other person
or entity.
(b) The COMPANY holds all licenses, franchises, permits and other
governmental authorizations the absence of any of which could have a Material
Adverse Effect and the COMPANY has delivered to HOLDING an accurate list and
summary description (which is set forth on Schedule 5.12(b)) of all such
licenses, franchises, permits and other governmental authorizations held the
Company, including all permits, titles, licenses, franchises and certificates
(it being understood and agreed that a list of all environmental permits and
other environmental approvals required to be identified under this Agreement is
set forth on Schedule 5.13). To the knowledge of the COMPANY, the licenses,
franchises, permits and other governmental authorizations listed on Schedules
5.12(b) and 5.13 are valid, and the COMPANY has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. The COMPANY has
conducted and is conducting its business in compliance with the requirements,
standards, criteria and conditions set forth in the licenses, franchises,
permits and other governmental authorizations listed on Schedules 5.12(b) and
5.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect. Except as
specifically provided in Schedule 5.12(a) or 5.12(b), the transactions
contemplated by this Agreement will not result in the infringement by the
COMPANY of any Intellectual Property right of any other person or entity or the
infringement of any Intellectual Property listed on Schedule 5.12(a), or result
in a default under or a breach or violation of, or materially and adversely
affect the rights and benefits afforded to the COMPANY by, any licenses,
franchises, permits or government authorizations listed on Schedule 5.12(b) or
Schedule 5.13.
5.13 Environmental Matters. Except as set forth on Schedule 5.13, (i) the
COMPANY has complied with and is in compliance in all material respects with all
Federal, state, local and foreign statutes (civil and criminal), laws,
ordinances, regulations, rules, notices, permits, judgments, orders and decrees
applicable to it or any of its properties, assets, operations and businesses
relating to environmental protection (collectively "Environmental Laws")
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including, without limitation, Environmental Laws relating to air, water, land
and the generation, storage, use, handling, transportation, treatment or
disposal of Hazardous Wastes and Hazardous Substances including petroleum and
petroleum products (as the foregoing terms are defined in any applicable
Environmental Law); (ii) the COMPANY has obtained and adhered in all material
respects to all necessary permits and other approvals necessary to treat,
transport, store, dispose of and otherwise handle Hazardous Wastes and Hazardous
Substances, a list of all of which permits and approvals is set forth on
Schedule 5.13, and has reported to the appropriate authorities, to the extent
required by all Environmental Laws, all past and present sites owned and
operated by the COMPANY where Hazardous Wastes or Hazardous Substances have been
treated, stored, disposed of or otherwise handled; (iii) there have been no
releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by the COMPANY except as permitted by Environmental Laws; (iv)
the COMPANY knows of no on-site or off-site location to which the COMPANY has
transported or arranged for the transportation of Hazardous Wastes and Hazardous
Substances for disposal or treatment, which site is the subject of any Federal,
state, local or foreign enforcement action or any other investigation which
could lead to any claim against the COMPANY, HOLDING or NEWCO for any clean-up
cost, remedial work, damage to natural resources, property damage or personal
injury, including, but not limited to, any claim under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended; and
(v) the COMPANY has no material contingent liability in connection with any
release of any Hazardous Waste or Hazardous Substance into the environment.
5.14 Personal Property. The COMPANY has delivered to HOLDING an accurate
list (which is set forth on Schedule 5.14) of (x) all personal property included
in "depreciable plant, property and equipment" (or similarly named line item) on
the balance sheet of the COMPANY as of the Balance Sheet Date or that will be
included on any balance sheet of the COMPANY prepared after the Balance Sheet
Date, (y) all other personal property owned by the COMPANY with a value
individually in excess of $10,000 (i) as of the Balance Sheet Date or (ii)
acquired since the Balance Sheet Date and (z) all leases and agreements in
respect of personal property with a cost or value in excess of $10,000,
including, in the case of clause (z), a schedule of the capital costs of all
such assets which are subject to capital leases and true, complete and correct
copies of all such leases and agreements and, in the case of clauses (x) and
(y), an indication as to which of those assets are currently owned, or were
formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or of any of the
STOCKHOLDERS. Except as set forth on Schedule 5.14, (i) all personal property
used by the COMPANY in its business is either owned by the COMPANY or leased by
the COMPANY pursuant to a lease included on Schedule 5.14, (ii) all of the
personal property used in the conduct of the business is in good working order
and condition, ordinary wear and tear excepted, and (iii) all leases and
agreements included on Schedule 5.14 are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the parties (and their successors) thereto in accordance with their respective
terms.
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5.15 Significant Customers; Material Contracts and Commitments. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.15) of (i) all significant customers, it being understood and agreed
that a "significant customer," for purposes of this Section 5.15, means a
customer (or person or entity) representing 5% or more of the COMPANY's
consolidated revenues for the year ending on the Balance Sheet Date. Except to
the extent set forth on Schedule 5.15, none of the COMPANY's significant
customers has canceled or substantially reduced its utilization of the services
provided by the COMPANY or, to the knowledge of the COMPANY, is currently
attempting or threatening to cancel a contract or substantially reduce
utilization of the services provided by the COMPANY.
The COMPANY has listed on Schedule 5.15 all material contracts,
commitments and similar agreements to which the COMPANY is a party or by which
it or any of its properties are bound (including, but not limited to, contracts
with significant customers, joint venture or partnership agreements, contracts
with any labor organizations, strategic alliances and options to purchase land),
other than contracts, commitments and agreements otherwise listed on Schedule
5.10, 5.14, 5.16, 5.18 or 5.19 that were (a) in existence as of the Balance
Sheet Date or (b) entered into since the Balance Sheet Date, and in each case
has delivered true, complete and correct copies of such agreements to HOLDING.
The COMPANY has complied with all material commitments and obligations
pertaining to it, and is not in default under any contracts or agreements listed
on Schedule 5.15, and no notice of default under any such contract or agreement
has been received by the COMPANY or any of the STOCKHOLDERS. The COMPANY has
also indicated on Schedule 5.15 a summary description of all plans or projects
involving the opening of new operations, expansion of existing operations or the
acquisition of any personal property, business or assets requiring, in any
event, the payment of more than $25,000 by the COMPANY.
5.16 Real Property. Schedule 5.16(a) includes a list of all real property
owned by the COMPANY (i) as of the Balance Sheet Date or (ii) acquired since the
Balance Sheet Date, and all other real property, if any, used by the COMPANY in
the conduct of its business. The COMPANY has good and insurable title to the
real property owned by it, including that reflected on Schedules 5.14 and 5.16,
subject to no mortgage, pledge, lien, conditional sale agreement, encumbrance or
charge, except for:
(i) liens reflected on Schedule 5.10 or 5.15 as securing specified
liabilities (with respect to which no default by the COMPANY exists);
(ii) liens for current taxes not yet due and payable and assessments
not in default;
(iii) easements for utilities serving the property only; and
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(iv) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the Town or County Clerks in which
the properties, assets and leasehold estates are located which do not
adversely affect the current use of the property.
Attached to Schedule 5.16(a) are true, complete and correct copies of all title
reports and title insurance policies currently in possession of the COMPANY with
respect to real property owned by the COMPANY.
Schedule 5.16(b) includes an accurate list of real property leased by the
COMPANY and an indication as to which such properties, if any, are currently
owned, or were formerly owned, by STOCKHOLDERS or Affiliates of the COMPANY or
of any of the STOCKHOLDERS, and attached to Schedule 5.16(b) are true, complete
and correct copies of all leases and agreements in respect of such real property
leased by the COMPANY. Except as set forth on Schedule 5.16(b), all of such
leases included on Schedule 5.16(b) are in full force and effect and constitute
valid and binding agreements of the COMPANY and, to the COMPANY'S knowledge, of
the other parties (and their successors) thereto in accordance with their
respective terms.
5.17 Insurance. Set forth on and attached to Schedule 5.17 are (i) an
accurate list as of the Balance Sheet Date of all insurance policies carried by
the COMPANY, (ii) an accurate list of all insurance loss runs and workers'
compensation claims received for the past three (3) policy years and (iii) true,
complete and correct copies of all insurance policies currently in effect. Such
insurance policies evidence all of the insurance that the COMPANY is required to
carry pursuant to all of its contracts and other agreements and pursuant to all
applicable laws. All of such insurance policies are currently in full force and
effect and shall remain in full force and effect through the Closing Date or, to
the extent that any such insurance policies expire by their terms on or prior to
the Closing Date, the COMPANY shall have renewed or replaced such insurance
policies on comparable terms and with comparable coverages prior to their
respective dates of expiration. Except as set forth on Schedule 5.17, no
insurance carried by the COMPANY has ever been canceled by the insurer and,
during the past three years, the COMPANY has never been denied coverage.
5.18 Compensation; Employment Agreements; Organized Labor Matters. The
COMPANY has delivered to HOLDING an accurate list (which is set forth on
Schedule 5.18) showing all officers, directors and key employees of the COMPANY,
listing all employment agreements with such officers, directors and key
employees and the annual rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons (i) for the year ended on the Balance Sheet Date and (ii) for the
ensuing fiscal year, if different. The COMPANY has provided to HOLDING true,
complete and correct copies of any employment agreements for persons listed on
Schedule 5.18. Except as set forth on Schedule 5.18, since the Balance Sheet
Date, there have been no increases in the compensation payable or any special
bonuses to any officer, director, key employee or other employee, except
ordinary salary increases implemented on a basis consistent with past practices.
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Except as set forth on Schedule 5.18, (i) the COMPANY is not bound
by or subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (ii) no employees of the
COMPANY are represented by any labor union or covered by any collective
bargaining agreement, (iii) to the COMPANY's knowledge, no campaign to establish
such representation is in progress and (iv) there is no pending or, to the
COMPANY's knowledge, threatened labor dispute involving the COMPANY and any
group of its employees nor has the COMPANY experienced any labor interruptions
over the past three years. The COMPANY believes its relationship with employees
to be good.
5.19 Employee Plans. The COMPANY has delivered to HOLDING an accurate
schedule (which is set forth on Schedule 5.19) showing all employee benefit
plans of the COMPANY, including all employment agreements and other agreements
or arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies of such plans, agreements and any trusts related thereto, and
classifications of employees covered thereby as of the Balance Sheet Date.
Except for the employee benefit plans, if any, described on Schedule 5.19, the
COMPANY does not sponsor, maintain or contribute to any plan, program, fund or
arrangement that constitutes an "employee pension benefit plan," nor does the
COMPANY have any obligation to contribute to or accrue or pay any benefits under
any deferred compensation or retirement funding arrangement on behalf of any
employee or employees (such as, for example, and without limitation, any
individual retirement account or annuity, any "excess benefit plan" (within the
meaning of Section 3(36) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) or any non-qualified deferred compensation arrangement).
For the purposes of this Agreement, the term "employee pension benefit plan"
shall have the same meaning as is given that term in Section 3(2) of ERISA. The
COMPANY does not currently maintain or contribute, and has not in the past three
years maintained or contributed, to any employee pension benefit plan other than
the plans set forth on Schedule 5.19, nor is the COMPANY required to contribute
to any retirement plan pursuant to the provisions of any collective bargaining
agreement establishing the terms and conditions of employment of any of the
COMPANY's employees, except as set forth on Schedule 5.19.
Except as set forth on Schedule 5.19, the COMPANY is not now, and it and
the STOCKHOLDERS do not reasonably expect to become, liable to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums in the
ordinary course) or to any multiemployer plan within the meaning of Section
3(37) of ERISA (a "Multiemployer Plan") under the provisions of Title IV of
ERISA.
All employee benefit plans other than Multiemployer Plans listed on
Schedule 5.19 and the administration thereof are in substantial compliance with
their terms and all applicable provisions of ERISA and the regulations issued
thereunder, as well as with all other applicable federal, state and local
statutes, ordinances and regulations.
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All accrued contribution obligations of the COMPANY with respect to any
plan listed on Schedule 5.19 have either been fulfilled in their entirety or are
fully reflected on the balance sheet of the COMPANY as of the Balance Sheet
Date.
5.20 Compliance with ERISA. All such plans listed on Schedule 5.19 other
than those plans which are Multiemployer Plans that are intended to qualify (the
"Qualified Plans") under Section 401(a) of the Code, are and have been so
qualified and have been determined by the Internal Revenue Service to be so
qualified, and copies of such determination letters are included as part of
Schedule 5.19 hereof. Except as disclosed on Schedule 5.19, all reports and
other documents required to be filed with any governmental agency or distributed
to plan participants or beneficiaries (including, but not limited to, actuarial
reports, audits or tax returns) have been timely filed or distributed, and
copies thereof are included as part of Schedule 5.19 hereof. None of the
STOCKHOLDERS, any plan other than the Multiemployer Plans listed in Schedule
5.19, any fiduciary with respect to such plans, nor the COMPANY has engaged in
any transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No such plan other than the Multiemployer Plans listed in
Schedule 5.19 has incurred an accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a)(1) of ERISA; and the COMPANY has
not incurred any liability for excise tax or penalty due to the Internal Revenue
Service nor any liability to the Pension Benefit Guaranty Corporation (other
than for payment in the ordinary course). Furthermore:
(i) there have been no terminations, partial terminations or any
discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by
the Internal Revenue Service;
(ii) no such plan listed in Schedule 5.19 that is subject to the
provisions of Title IV of ERISA has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such plan other than
Multiemployer Plans listed in Schedule 5.19;
(iv) the COMPANY has not incurred liability under Section 4062 of
ERISA; and
(v) no circumstances exist pursuant to which the COMPANY could have
any direct or indirect liability whatsoever (including, but not limited
to, any liability to any Multiemployer Plan or the Pension Benefit
Guaranty Corporation (other than for the payment of premiums in the
ordinary course) under Title IV of ERISA or to the Internal Revenue
Service for any excise tax or penalty, or being subject to any statutory
lien to secure payment of any such liability) with respect to any plan now
or heretofore maintained or contributed to by any entity other than the
COMPANY that is, or at any
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time was, a member of a "controlled group" (as defined in Section
412(n)(6)(B) of the Code) that includes the COMPANY.
5.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 5.21 or 5.13, the COMPANY is in compliance in all material respects
with all applicable laws, regulations and orders of all courts and of all
Federal, state, municipal or other governmental departments, commissions,
boards, bureaus, agencies and instrumentalities having jurisdiction over any of
them; and except to the extent set forth on Schedule 5.21, 5.10 or 5.13, there
are no claims, actions, suits or proceedings pending or, to the knowledge of the
COMPANY, threatened, against or affecting the COMPANY, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the COMPANY, and no notice of any claim, action, suit or proceeding, whether
pending or threatened, has been received by the COMPANY or any STOCKHOLDER. The
COMPANY has conducted and is conducting its business in compliance in all
material respects with the requirements, standards, criteria and conditions set
forth in all applicable Federal, state and local statutes, ordinances, permits,
licenses, orders, approvals, variances, rules and regulations, including all
such permits, licenses, orders and other governmental approvals set forth on
Schedules 5.12 and 5.13, and is not in violation in any material respect of any
of the foregoing.
5.22 Taxes. Except as set forth on Schedule 5.22:
(i) All Returns required to have been filed by or with respect to
the COMPANY and any affiliated, combined, consolidated, unitary or similar
group of which the COMPANY is or was a member (a "Relevant Group") with
any Taxing Authority have been duly filed (taking into consideration any
extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return) due
and payable by the COMPANY, any subsidiary and any member of a Relevant
Group (individually, the "Acquired Party" and collectively, the "Acquired
Parties") have been paid.
(ii) To the knowledge of the COMPANY or any of the STOCKHOLDERS, the
provisions for Taxes to be paid by the COMPANY and any subsidiaries (as
opposed to any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) in the COMPANY Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of such Acquired Party.
(iii) No Acquired Party is a party to any agreement extending the
time within which to file any Return. No claim has ever been made by any
Taxing Authority in a jurisdiction in which an Acquired Party does not
file Returns that it is or may be subject to taxation by that
jurisdiction.
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(iv) Each Acquired Party has withheld and paid all applicable Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third
party.
(v) To the knowledge of any Acquired Party or any STOCKHOLDER, no
Taxing Authority is expected to assess any additional Taxes against or in
respect of it for any past period. There is no dispute or claim concerning
any Tax liability of any Acquired Party either (i) claimed or raised by
any Taxing Authority or (ii) otherwise known to any Acquired Party. No
issues have been raised in any examination by any Taxing Authority with
respect to any Acquired Party which, by application of similar principles,
reasonably could be expected to result in a proposed deficiency for any
other period not so examined. Schedule 5.22(v) attached hereto lists all
federal, state, local and foreign income Tax Returns filed by or with
respect to any Acquired Party for all taxable periods ended on or after
January 1, 1991, indicates those Returns, if any, that have been audited,
and indicates those Returns that currently are the subject of audit. Each
Acquired Party has delivered to HOLDING complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by, and all Tax
examination reports and statements of deficiencies assessed against or
agreed to by, such Acquired Party since January 1, 1991.
(vi) No Acquired Party has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to any
Tax assessment or deficiency.
(vii) No Acquired Party has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could require it to make any payments, that are not
deductible under Section 280G of the Code.
(viii) No Acquired Party is a party to any Tax allocation or sharing
agreement.
(ix) None of the assets of any Acquired Party constitutes tax-exempt
bond financed property or tax-exempt use property, within the meaning of
Section 168 of the Code. No Acquired Party is a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the
Internal Revenue Code as in effect prior to the Tax Reform Act of 1986, or
to any "long-term contract" within the meaning of Section 460 of the Code.
(x) No Acquired Party is a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any
state statutes, and none of the assets of any Acquired Party is subject to
an election under Section 341(f) of the Code or comparable provisions of
any state statutes.
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(xi) No Acquired Party is a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income
Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any Acquired Party that could
give rise to an adjustment under Section 481 of the Code for periods after
the Closing Date.
(xiii) No Acquired Party has received any written ruling of a Taxing
Authority related to Taxes or entered into any written and legally binding
agreement with a Taxing Authority relating to Taxes.
(xiv) Each Acquired Party has disclosed (in accordance with Section
6662(d)(2)(B)(ii) of the Code) on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Section 6662(d)
of the Code.
(xv) No Acquired Party has any liability for Taxes of any person or
entity other than such Acquired Party (i) under Section 1.1502-6 of the
Treasury regulations (or any similar provision of state, local or foreign
law), (ii) as a transferee or successor, (iii) by contract or (iv)
otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any Acquired Party (collectively, the "Tax Losses")
under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) Section
1.1502-15 and Section 1.1502-15A of the Treasury regulations, (vi) Section
1.1502-21 and Section 1.1502-21A of the Treasury regulations or (vii)
Sections 1.1502-91 through 1.1502-99 of the Treasury regulations, in each
case as in effect both prior to and following the Tax Reform Act of 1986.
(xvii) At the end of the COMPANY's most recent taxable year, the
Acquired Parties had aggregate Tax Losses for federal income Tax purposes
as described on Schedule 5.22(xvii) attached hereto.
For purposes of this Agreement, the following definitions shall
apply:
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax with
any Taxing Authority or governmental agency.
"Tax" or "Taxes" means all Federal, state, local or foreign net or
gross income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add-on
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minimum, environmental or other taxes, assessments, duties, fees, levies or
other governmental charges of any nature whatsoever, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"Taxing Authority" means any governmental agency, board, bureau,
body, department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
5.23 No Violations. The COMPANY is not in violation of any Charter
Document. Except as set forth on Schedule 5.23, neither the COMPANY nor, to the
knowledge of the COMPANY or any of the STOCKHOLDERS, any other party thereto, is
in default under any lease, instrument, agreement, license, or permit set forth
on Schedule 5.12, 5.13, 5.14, 5.15, 5.16, 5.18 or 5.19 or any other material
agreement to which it is a party or by which its properties are bound
(collectively, the "Material Documents"); and, except as set forth on Schedule
5.23, (a) the rights and benefits of the COMPANY under the Material Documents
will not be materially and adversely affected by the transactions contemplated
hereby and (b) the execution of this Agreement and the performance by the
COMPANY and the STOCKHOLDERS of their obligations hereunder and the consummation
by the COMPANY and the STOCKHOLDERS of the transactions contemplated hereby will
not result in any violation or breach of, or constitute a default under, any of
the terms or provisions of the Material Documents or the Charter Documents.
Except as set forth on Schedule 5.23, none of the Material Documents requires
notice to, or the consent or approval of, any governmental agency or other third
party with respect to any of the transactions contemplated hereby in order to
remain in full force and effect and consummation of the transactions
contemplated hereby will not give rise to any right to termination, cancellation
or acceleration or loss of any right or benefit. Except as set forth on Schedule
5.23, none of the Material Documents prohibits the use or publication by the
COMPANY, HOLDING or NEWCO of the name of any other party to such Material
Document, and none of the Material Documents prohibits or restricts the COMPANY
from freely providing services to any other customer or potential customer of
the COMPANY, HOLDING, NEWCO or any Other Founding Company.
5.24 Government Contracts. Except as set forth on Schedule 5.24, the
COMPANY is not a party to any governmental contract subject to price
redetermination or renegotiation.
5.25 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 5.25, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of the COMPANY;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the COMPANY;
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(iii) any change in the authorized capital of the COMPANY or its
outstanding securities or any change in the terms of its ownership
interests or any grant or issuance of any options, warrants, calls,
conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of the COMPANY;
(v) any increase in the compensation, bonus, sales commissions or
fees payable or to become payable by the COMPANY to any of its officers,
directors, STOCKHOLDERS, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice or as otherwise described on Schedule 5.18;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, materially adversely affecting
the business of the COMPANY;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the COMPANY to any person or
entity, including, without limitation, any of the STOCKHOLDERS or any of
their Affiliates;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to the COMPANY in excess of $10,000 in the
aggregate, or any cancellation or agreement to cancel any indebtedness or
obligation of any of the STOCKHOLDERS or any Affiliate thereof; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
and provided, further, that such adjustments shall not be deemed to be
included in Schedule 5.11 unless specifically listed thereon;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property
or rights of the COMPANY or requiring consent of any party to the transfer
and assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside
of the ordinary course of the COMPANY's business consistent with past
practice;
(xi) any waiver of any material rights or claims of the COMPANY;
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(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which the COMPANY is a party
or as to which it is a beneficiary;
(xiii) any transaction by the COMPANY outside the ordinary course of
its respective businesses consistent with past practices;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date;
(xv) any other distribution of property or assets by the COMPANY; or
(xvi) any other activity prohibited by Section 7.3 that is not
specifically included in this Section 5.25.
5.26 Deposit Accounts; Powers of Attorney. Schedule 5.26 sets forth a
complete and correct list of:
(i) the name of each financial institution in which the COMPANY has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
Schedule 5.26 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the COMPANY and
a description of the terms of such power of attorney.
5.27 Validity of Obligations. The execution and delivery of this Agreement
by the COMPANY and the performance of the transactions contemplated herein have
been duly and validly authorized by the Board of Directors of the COMPANY and
this Agreement has been duly and validly authorized by all necessary corporate
action and is a legal, valid and binding obligation of the COMPANY, enforceable
against the COMPANY in accordance with its terms.
5.28 Relations with Governments. The COMPANY has not made, offered or
agreed to offer anything of value to any governmental official, political party
or candidate for government office nor has it otherwise taken any action which
would cause the COMPANY to be in violation of the Foreign Corrupt Practices Act
of 1977, as amended, or any law of similar effect.
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5.29 Disclosure. (a) This Agreement, including the schedules hereto,
together with the completed Directors and Officers Questionnaires and
Registration Statement Questionnaires attached hereto as Schedule 5.29 and all
other documents and information made available to HOLDING and its
representatives in writing pursuant hereto or thereto, present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. The COMPANY'S rights under the documents
delivered pursuant hereto would not be materially adversely affected by, and no
statement made herein would be rendered untrue in any material respect by, any
other document to which the COMPANY is a party, or to which its properties are
subject, or by any other fact or circumstance regarding the COMPANY that is not
disclosed pursuant hereto or thereto. If, prior to the 25th day after the date
of HOLDING's final prospectus utilized in connection with the IPO, the COMPANY
or the STOCKHOLDERS become aware of any fact or circumstance which would change
(or, if after the Closing Date, would have changed) a representation or warranty
of the COMPANY or the STOCKHOLDERS in this Agreement or would affect any
document delivered pursuant hereto in any material respect, the COMPANY and the
STOCKHOLDERS shall immediately give notice of such fact or circumstance to
HOLDING. However, subject to the provisions of Section 7.8, such notification
shall not relieve either the COMPANY or the STOCKHOLDERS of their respective
obligations under this Agreement, and, subject to the provisions of Section 7.8,
at the sole option of HOLDING, the truth and accuracy of any and all warranties
and representations of the COMPANY or on behalf of the COMPANY and of the
STOCKHOLDERS, in each case at the date of this Agreement and on the Pre-Closing
Date and on the Closing Date, shall be a precondition to the consummation of
this transaction.
(b) The COMPANY and the STOCKHOLDERS acknowledge and agree (i) that
there exists no firm commitment, binding agreement, or promise or other
assurance of any kind, whether express or implied, oral or written, that a
Registration Statement will become effective or that the IPO pursuant thereto
will occur at a particular price or within a particular range of prices or occur
at all; (ii) that neither HOLDING nor any of its shareholders, officers,
directors, agents or representatives nor any Underwriter shall have any
liability to the COMPANY, the STOCKHOLDERS or any other person or entity
affiliated or associated with the COMPANY for any failure of the Registration
Statement to become effective, the IPO to occur at a particular price or within
a particular range of prices or to occur at all; and (iii) that the decision of
the STOCKHOLDERS to enter into this Agreement, or to vote in favor of or consent
to the proposed Merger, has been or will be made independent of, and without
reliance upon, any statements, opinions or other communications, or due
diligence investigations which have been or will be made or performed by any
prospective Underwriter, relative to HOLDING or the prospective IPO.
5.30 Prohibited Activities. Except as set forth on Schedule 5.30, the
COMPANY has not, between the Balance Sheet Date and the date hereof, taken any
of the actions (Prohibited Activities) set forth in Section 7.3.
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(B) Representations and Warranties of the STOCKHOLDERS
Each STOCKHOLDER severally represents and warrants that the
representations and warranties set forth below are true as of the date of this
Agreement, and that the representations and warranties set forth in Sections
5.31 through 5.35 shall survive until January 31, 1999, which shall be deemed to
be the Expiration Date for purposes of those Sections.
5.31 Authority. Such STOCKHOLDER has the full legal right, power and
authority to enter into this Agreement. Such STOCKHOLDER owns beneficially and
of record all of the shares of the COMPANY Stock identified on Annex IV as being
owned by such STOCKHOLDER and, except as set forth on Schedule 5.31, such
COMPANY Stock is owned free and clear of all liens, security interests, pledges,
charges, voting trusts, restrictions, encumbrances and claims of every kind.
5.32 Preemptive Rights. Such STOCKHOLDER does not have, or hereby waives,
any preemptive or other right to acquire shares of COMPANY Stock or HOLDING
Stock that such STOCKHOLDER has or may have had, other than rights of such
STOCKHOLDER to acquire HOLDING Stock pursuant to (i) this Agreement or (ii) any
option granted by HOLDING.
5.33 Transactions with Directors, Officers and Affiliates. The completed
Officers and Directors Questionnaire of such STOCKHOLDER, if any, attached
hereto as Schedule 5.33 is complete and correct in all material respects. If,
prior to the 25th day after the date of the final prospectus of HOLDING utilized
in connection with the IPO, such STOCKHOLDER becomes aware of any fact or
circumstance which would affect the information disclosed in its Directors and
Officers Questionnaire in any material respect, then such STOCKHOLDER shall
immediately give notice of such fact or circumstance to HOLDING. However,
subject to the provisions of Section 7.8, such notification shall not relieve
the STOCKHOLDER of any of its obligations under this Agreement. Except as listed
on Schedule 5.33 annexed hereto, there have been no transactions since January
1, 1992 between the COMPANY and any of its directors, officers, stockholders or
affiliates or any of their Family Members (as defined below) involving $60,000
or more, except for any transaction with such persons solely in such capacities.
Except as set forth on Schedule 5.33, each transaction set forth on Schedule
5.33 has been on reasonable commercial terms which could have been obtained at
the time from bona fide third parties. To the best knowledge of such
STOCKHOLDER, since January 1, 1992, none of the officers or directors of the
COMPANY or any spouse or Family Member (as defined below) of any of such persons
has been a director, officer or consultant of, or owns directly or indirectly
any interest in, any firm, corporation, association or business enterprise which
during such period has been a significant supplier, customer or sales agent of
the COMPANY or has competed with or been engaged in any business of the kind
being conducted by the COMPANY except as disclosed on Schedule 5.33 annexed
hereto. Except as disclosed on Schedule 5.33, no Family Member (as defined
below) of any STOCKHOLDER, officer or director of the COMPANY is currently an
employee or consultant receiving payments from the COMPANY or otherwise on the
payroll of
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the COMPANY or has any material claim whatsoever against or owes any amount to
the COMPANY, except for claims in the ordinary course of business such as for
accrued vacation pay and accrued benefits under employee benefit plans. "Family
Member" as it applies to any person shall mean all relatives and their spouses
in a relationship of first cousin or closer to such person or such person's
spouse.
5.34 Securities Act Representations. Except as set forth on Schedule 5.34,
the STOCKHOLDER alone, or together with such STOCKHOLDER's "purchaser
representative" (as defined in Rule 501(h) promulgated under the 1933 Act):
(a) acknowledges and agrees that (x) the shares of HOLDING Stock to be
delivered to the STOCKHOLDER pursuant to this Agreement have not been and will
not be registered under the 1933 Act or any state securities or "blue sky" laws,
and therefore may not be sold, transferred or otherwise conveyed without
compliance with the 1933 Act and all applicable state securities or "blue sky"
laws, or pursuant to an exemption therefrom and (y) the HOLDING Stock to be
acquired by the STOCKHOLDER pursuant to this Agreement is being acquired solely
for its own account, for investment purposes only, and with no present intention
of distributing, selling or otherwise disposing of the HOLDING Stock in
connection with a distribution;
(b) acknowledges and agrees that it knows and understands that an
investment in the HOLDING Stock is a speculative investment which involves a
high degree of risk of loss;
(c) represents and warrants that it is able to bear the economic risk of
an investment in the HOLDING Stock acquired pursuant to this Agreement, can
afford to sustain a total loss of such investment and it (or for those
STOCKHOLDERS that are trusts, its trustee or trustees) has such knowledge and
experience in financial and business matters that it (or for those STOCKHOLDERS
that are trusts, its trustee or trustees) is capable of evaluating the merits
and risks of the proposed investment in the HOLDING Stock;
(d) represents and warrants that it has had an adequate opportunity to
review and to ask questions and receive answers concerning any and all matters
relating to the transactions described in (i) HOLDING's private placement
memorandum and (ii) this Agreement;
(e) represents and warrants that (1) it has had access to all relevant
information regarding and has had adequate opportunity to ask questions and
received answers concerning (i) the background and experience of the current and
proposed officers and directors of HOLDING, (ii) the plans for the operations of
the business of HOLDING, (iii) the business, operations and financial condition
of the Other Founding Companies, and (iv) any plans for additional acquisitions
and the like and (2) it has received all such relevant information and has asked
any and all questions in the nature described in the preceding clause (1) and
all questions have been answered to its satisfaction;
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(f) represents and warrants that (i) such STOCKHOLDER is an "accredited
investor" (as defined in Rule 501(a) promulgated under the 1933 Act) and (ii)
after taking into consideration the information and advice provided the
STOCKHOLDER, such STOCKHOLDER (or for those STOCKHOLDERS that are trusts, its
trustee or trustees) has the requisite knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of an
investment in the HOLDING Stock and (iii) for any STOCKHOLDER that is a trust
and is not an "accredited investor", such STOCKHOLDER counts as one purchaser
for purposes of Rule 506 under the Securities Act;
(g) represents and warrants that, to its knowledge, there have been no
general or public solicitations or advertisements or other broadly disseminated
disclosures (including, without limitation, any advertisement, article, notice
or other communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or advertising) by or on behalf of
HOLDING regarding an investment in the HOLDING Stock; and
(h) acknowledges and agrees that the HOLDING Stock shall bear the
following legend in addition to the legend required under Section 15 of this
Agreement:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS AND, IF REQUIRED BY
ENFINITY CORPORATION, AN OPINION OF COUNSEL TO ENFINITY CORPORATION
STATING THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.
The STOCKHOLDER acknowledges that the effect of the foregoing legend, among
other things, is or may be to limit or destroy the value of the certificate for
purposes of sale or use as loan collateral. The STOCKHOLDER consents that "stop
transfer" instructions may be noted against the HOLDING Stock.
5.35 Registration Statement Questionnaires. The completed Registration
Statement Questionnaires attached hereto as Schedule 5.35 present fairly the
business and operations of the COMPANY for the time periods with respect to
which such information was requested. If, prior to the 25th day after the date
of the final prospectus of HOLDING utilized in connection with the IPO, the
STOCKHOLDER becomes aware of any fact or circumstance which would affect the
information disclosed in its Registration Statement Questionnaires in any
material respect, then the STOCKHOLDER shall immediately give notice of such
fact or circumstance to HOLDING.
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However, subject to the provisions of Section 7.8, such notification shall not
relieve the STOCKHOLDER of its obligations under this Agreement.
6. REPRESENTATIONS OF HOLDING and NEWCO
HOLDING and NEWCO jointly and severally represent and warrant that all of
the following representations and warranties in this Section 6 are true at the
date of this Agreement and that such representations and warranties shall
survive the Closing Date until January 31, 1999 (the "Expiration Date"), except
that (i) the warranties and representations set forth in Section 6.14 hereof
shall survive until such time as the limitations period has run for all tax
periods ended on or prior to the Closing Date, which shall be deemed to be the
Expiration Date for Section 6.14 and (ii) solely for purposes of Section
11.2(iv) hereof, and solely to the extent that in connection with the IPO, a
STOCKHOLDER actually incurs liability under the 1933 Act, the 1934 Act or any
other Federal or state securities laws, the representations and warranties set
forth herein shall survive until the expiration of any applicable limitations
period, which shall be deemed to be the Expiration Date for such purposes.
6.1 Due Organization. HOLDING and NEWCO are each corporations duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and are duly authorized and qualified to do business under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on their respective business in the places and in the manner as now
conducted except where the failure to be so authorized or qualified would not
have a Material Adverse Effect. True, complete, correct and certified copies of
the Certificate of Incorporation and By-laws, each as amended, of HOLDING and
NEWCO (the "HOLDING Charter Documents") are all attached hereto as Annex II.
Schedule 6.1 sets forth a list of all jurisdictions in which HOLDING or NEWCO is
authorized or qualified to do business.
6.2 Authorization. (i) The respective representatives of HOLDING and NEWCO
executing this Agreement have the authority to enter into and bind HOLDING and
NEWCO to the terms of this Agreement and (ii) HOLDING and NEWCO have the
corporate right, power and authority to enter into this Agreement and the
Merger.
6.3 Capital Stock of HOLDING and NEWCO. The authorized capital stock of
HOLDING and NEWCO is as set forth in Sections 1.4(ii) and (iii), respectively.
All of the issued and outstanding shares of the capital stock of NEWCO are owned
by HOLDING and all of the issued and outstanding shares of the capital stock of
HOLDING are owned by the persons set forth on Annex V hereof, in each case free
and clear of all liens, security interests, pledges, charges, voting trusts,
restrictions, encumbrances and claims of every kind. All of the issued and
outstanding shares of the capital stock of NEWCO and HOLDING have been duly
authorized and validly issued, are fully paid and nonassessable, are owned of
record and beneficially by HOLDING and by the persons set forth on Annex V,
respectively, and were offered, issued, sold
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and delivered by HOLDING and NEWCO in compliance with all applicable state and
Federal laws concerning the issuance of securities. Further, none of such shares
was issued in violation of the preemptive rights of any past or present
stockholder of HOLDING or NEWCO.
6.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 6.4 of this Agreement and as set forth in the Registration
Statement, (i) no option, warrant, call, conversion right or commitment of any
kind exists which obligates HOLDING or NEWCO to issue any of its authorized but
unissued capital stock or its treasury stock; and (ii) neither HOLDING nor NEWCO
has any obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans of
HOLDING and NEWCO, including a list, accurate as of the date hereof, of all
outstanding options, warrants or other rights to acquire shares of their
respective capital stock.
6.5 Subsidiaries. NEWCO has no subsidiaries. HOLDING has no subsidiaries
except for NEWCO and each of the companies identified as "NEWCO" in each of the
Other Agreements. Except as set forth in the preceding sentence, neither HOLDING
nor NEWCO owns, of record or beneficially, or controls, directly or indirectly,
any capital stock, securities convertible into capital stock or any other equity
interest in any corporation, association or business entity nor is HOLDING or
NEWCO, directly or indirectly, a participant in any joint venture, partnership
or other non-corporate entity.
6.6 Financial Statements. (a) Attached hereto as Schedule 6.6(a) are
copies of the following financial statements of HOLDING (the "HOLDING Financial
Statements"), which reflect the results of its operations from inception:
HOLDING's audited Balance Sheet as of December 31, 1997 and Statements of
Income, Cash Flows and Retained Earnings for the period from inception through
December 31, 1997. Such HOLDING Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated (except as noted thereon or on Schedule
6.6(a)). Except as set forth on Schedule 6.6(a), such Balance Sheet as of
December 31, 1997 presents fairly the financial position of HOLDING as of such
date, and such Statements of Income, Cash Flows and Retained Earnings present
fairly the results of operations for the period indicated.
(b) Since the Balance Sheet Date, except as set forth in the draft of the
Registration Statement delivered to the STOCKHOLDERS, and except as contemplated
by this Agreement and the Other Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of HOLDING or
NEWCO;
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
HOLDING or NEWCO;
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(iii) any change in the authorized capital of HOLDING or NEWCO or
their outstanding securities or any change in their ownership interests or
any grant or issuance of any options, warrants, calls, conversion rights
or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of HOLDING or
NEWCO;
(v) any work interruptions, labor grievances or claims filed, or any
event or condition of any character, materially adversely affecting the
business of HOLDING or NEWCO;
(vi) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of HOLDING or NEWCO to any person or
entity;
(vii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to HOLDING or NEWCO in excess of $10,000 in the
aggregate;
(viii) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property
or rights of HOLDING or NEWCO or requiring consent of any party to the
transfer and assignment of any such assets, property or rights;
(ix) any waiver of any material rights or claims of HOLDING or
NEWCO;
(x) any material breach, amendment or termination of any material
contract, agreement, license, permit or other right to which HOLDING or
NEWCO is a party or as to which it is a beneficiary;
(xi) any transaction by HOLDING or NEWCO outside the ordinary course
of its business;
(xii) any other distribution of property or assets by HOLDING or
NEWCO.
6.7 Liabilities and Obligations. Except as set forth on Schedule 6.7,
HOLDING and NEWCO have no material liabilities, contingent or otherwise, except
as set forth in or contemplated by this Agreement and the Other Agreements and
except for fees and expenses incurred in connection with the transactions
contemplated hereby and thereby.
6.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.8, neither HOLDING nor NEWCO is in violation of any law or
regulation, which violation would have a Material Adverse Effect, or of any
order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
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jurisdiction over either of them; and except to the extent set forth in Schedule
6.8, there are no material claims, actions, suits or proceedings pending or, to
the knowledge of HOLDING or NEWCO, threatened against or affecting HOLDING or
NEWCO, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them, and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. HOLDING and NEWCO have conducted and are conducting their respective
businesses in compliance with the requirements, standards, criteria and
conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation in any material respect of any of the
foregoing.
6.9 No Violations. Neither HOLDING nor NEWCO is in violation of any
HOLDING Charter Document. None of HOLDING, NEWCO or, to the knowledge of HOLDING
and NEWCO, any other party thereto is in default under any lease, instrument,
agreement, license, or permit to which HOLDING or NEWCO is a party, or by which
HOLDING or NEWCO, or any of its properties, is bound (collectively, the "HOLDING
Documents"); and (a) the rights and benefits of HOLDING and NEWCO under the
HOLDING Documents will not be adversely affected by the transactions
contemplated hereby and (b) the execution of this Agreement and the performance
of HOLDING's and NEWCO's obligations hereunder and the consummation by them of
the transactions contemplated hereby will not result in any violation or breach
or constitute a default under any of the terms or provisions of the HOLDING
Documents or the HOLDING Charter Documents. Except as set forth on Schedule 6.9,
none of the HOLDING Documents requires notice to, or the consent or approval of,
any governmental agency or other third party with respect to any of the
transactions contemplated hereby in order to remain in full force and effect,
and the consummation of the transactions contemplated hereby will not give rise
to any right to termination, cancellation or acceleration or loss of any right
or benefit of HOLDING or NEWCO.
6.10 Validity of Obligations. The execution and delivery of this Agreement
by HOLDING and NEWCO and the performance by them of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of HOLDING and NEWCO and this Agreement has been duly and
validly authorized by all necessary corporate action and is a legal, valid and
binding obligation of HOLDING and NEWCO enforceable against HOLDING and NEWCO in
accordance with its terms. The execution and delivery of the Other Agreements by
HOLDING and the other subsidiaries of HOLDING that are party thereto and the
performance by each of them of the transactions contemplated thereby have been
duly and validly authorized by the respective Boards of Directors of HOLDING and
such subsidiaries, and such Other Agreements have been duly and validly
authorized by all necessary corporate action and are legal, valid and binding
obligations of HOLDING and the subsidiaries that are party thereto.
6.11 HOLDING Stock. At the time of issuance thereof, the HOLDING Stock to
be delivered to the STOCKHOLDERS pursuant to this Agreement will constitute
valid and legally
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issued shares of HOLDING, fully paid and nonassessable, and with the exception
of restrictions upon resale set forth in Section 15 hereof, will be identical in
all material and substantive respects to the HOLDING Stock issued and
outstanding as of the date hereof by reason of the provisions of the Delaware
GCL. The shares of HOLDING Stock to be issued to the STOCKHOLDERS pursuant to
this Agreement will not be registered under the 1933 Act, except as provided in
Section 16 hereof.
6.12 Other Agreements. Neither HOLDING nor NEWCO has entered or will enter
into any material agreement with any of the Founding Companies or any of the
stockholders of the Founding Companies other than the Other Agreements and the
agreements contemplated by each of the Other Agreements, including the
employment agreements referred to therein. Except with respect to the Schedules
thereto and the consideration payable at the Effective Time of the Merger, the
Other Agreements are substantially identical to this Agreement in all material
respects. Following the date hereof, HOLDING shall provide a copy of each such
Other Agreement (including all Schedules and Annexes thereto) to the Stockholder
Representative promptly upon request.
6.13 Business; Real Property; Material Agreements. Neither HOLDING nor
NEWCO has conducted any operations or business since inception other than
activities related to the HOLDING Plan of Organization. Neither HOLDING nor
NEWCO owns or has at any time owned any real property or any material personal
property or is a party to any other material agreement, except as listed on
Schedule 6.13 and except that HOLDING is a party to the Other Agreements and the
agreements contemplated thereby and to certain agreements which will be filed as
Exhibits to the Registration Statement.
6.14 Taxes. NEWCO is a newly formed entity with no tax or operational
history. Except as set forth on Schedule 6.14:
(i) All Returns required to have been filed by or with respect to
HOLDING and any affiliated, combined, consolidated, unitary or similar
group of which HOLDING is or was a member (a "HOLDING Relevant Group")
with any Taxing Authority have been duly filed (taking into consideration
any extension for each such Return), and each such Return correctly and
completely reflects the Tax liability and all other information required
to be reported thereon. All Taxes (whether or not shown on any Return)
owed by the HOLDING Relevant Group have been paid.
(ii) The provisions for Taxes due by HOLDING and any subsidiaries
(as opposed to any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) in the HOLDING Financial
Statements are sufficient for all unpaid Taxes, being current taxes not
yet due and payable, of the HOLDING Relevant Group.
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(iii) No corporation in the HOLDING Relevant Group is a party to any
agreement extending the time within which to file any Return. No claim has
ever been made by any Taxing Authority in a jurisdiction in which a
corporation in the HOLDING Relevant Group does not file Returns that it is
or may be subject to taxation by that jurisdiction.
(iv) Each corporation in the HOLDING Relevant Group has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor or
other third party.
(v) To the knowledge of any corporation in the HOLDING Relevant
Group, no Taxing Authority is expected to assess any additional Taxes
against or in respect of it for any past period. There is no dispute or
claim concerning any Tax liability of any corporation in the HOLDING
Relevant Group either (i) claimed or raised by any Taxing Authority or
(ii) otherwise known to any corporation in the HOLDING Relevant Group. No
issues have been raised in any examination by any Taxing Authority with
respect to any corporation in the HOLDING Relevant Group which, by
application of similar principles, reasonably could be expected to result
in a proposed deficiency for any other period not so examined. Schedule
6.14(v) attached hereto lists all federal, state, local and foreign income
Tax Returns filed by or with respect to any corporation in the HOLDING
Relevant Group for all taxable periods, indicates those Returns, if any,
that have been audited, and indicates those Returns that currently are the
subject of audit. Each corporation in the HOLDING Relevant Group will make
available to the COMPANY and the STOCKHOLDERS, at their request, complete
and correct copies of all federal, state, local and foreign income Tax
Returns filed by, and all Tax examination reports and statements of
deficiencies assessed against or agreed to by, HOLDING.
(vi) No corporation in the HOLDING Relevant Group has waived any
statute of limitations in respect of Taxes or agreed to any extension of
time with respect to any Tax assessment or deficiency.
(vii) No corporation in the HOLDING Relevant Group has made any
payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could require it to make any
payments, that are not deductible under Section 280G the Code.
(viii) No corporation in the HOLDING Relevant Group is a party to
any Tax allocation or sharing agreement.
(ix) None of the assets of any corporation in the HOLDING Relevant
Group constitutes tax-exempt bond financed property or tax-exempt use
property, within the meaning of Section 168 of the Code. No corporation in
the HOLDING Relevant Group is a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8)
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of the Internal Revenue Code as in effect prior to the Tax Reform Act of
1986, or to any "long-term contract" within the meaning of Section 460 of
the Code.
(x) No corporation in the HOLDING Relevant Group is a "consenting
corporation" within the meaning of Section 341(f)(1) of the Code, or
comparable provisions of any state statutes, and none of the assets of any
corporation in the HOLDING Relevant Group is subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(xi) No corporation in the HOLDING Relevant Group is a party to any
joint venture, partnership or other arrangement that is treated as a
partnership for federal income Tax purposes.
(xii) There are no accounting method changes or proposed or
threatened accounting method changes, of any corporation in the HOLDING
Relevant Group that could give rise to an adjustment under Section 481 of
the Code for periods after the Closing Date.
(xiii) No corporation in the HOLDING Relevant Group has received any
written ruling of a Taxing Authority related to Taxes or entered into any
written and legally binding agreement with a Taxing Authority relating to
Taxes.
(xiv) Each corporation in the HOLDING Relevant Group has disclosed
(in accordance with Section 6662(d)(2)(B)(ii) of the Code) on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Section 6662(d) of the Code.
(xv) No corporation in the HOLDING Relevant Group has any liability
for Taxes of any person or entity other than such corporation in the
HOLDING Relevant Group (i) under Section 1.1502-6 of the Treasury
regulations (or any similar provision of state, local or foreign law),
(ii) as a transferee or successor, (iii) by contract or (iv) otherwise.
(xvi) There currently are no limitations on the utilization of the
net operating losses, built-in losses, capital losses, Tax credits or
other similar items of any corporation in the HOLDING Relevant Group under
(i) Section 382 of the Code, (ii) Section 383 of the Code, (iii) Section
384 of the Code, (iv) Section 269 of the Code, (v) Section 1.1502-15 and
Section 1.1502-15A of the Treasury regulations, (vi) Section 1.1502-21 and
Section 1.1502-21A of the Treasury regulations or (vii) sections 1.1502-91
through 1.1502-99 of the Treasury regulations, in each case as in effect
both prior to and following the Tax Reform Act of 1986.
6.15 Disclosure. To the best knowledge of HOLDING, no representations or
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warranties by HOLDING or NEWCO in this Agreement and no statement contained in
the Registration Statement or in any other document furnished by HOLDING or
NEWCO to the COMPANY or any of its STOCKHOLDERS pursuant to the provisions
hereof, contains any untrue statement of material fact or omits to state any
fact necessary in light of the circumstances under which it was made in order to
make the statements herein or therein not misleading.
7. COVENANTS PRIOR TO CLOSING
7.1 Access and Cooperation; Due Diligence. (a) Between the date of this
Agreement and the Closing Date, the COMPANY will afford to the officers and
authorized representatives of HOLDING and the Other Founding Companies
(including, without limitation, their respective counsel) reasonable access,
during normal business hours and upon prior written notice, to all of the
COMPANY's sites, properties, books and records and will furnish HOLDING with
such additional financial and operating data and other information as to the
business and properties of the COMPANY as HOLDING or the Other Founding
Companies may from time to time reasonably request in connection with and
related to the transactions contemplated by this Agreement and the Registration
Statement. The COMPANY will cooperate with HOLDING and the Other Founding
Companies and their respective representatives, including HOLDING's auditors and
counsel, in the preparation of any documents or other material (including the
Registration Statement) which may be required in connection with the
transactions contemplated by this Agreement. HOLDING, NEWCO, the STOCKHOLDERS
and the COMPANY will treat all information obtained in connection with the
negotiation and performance of this Agreement or the due diligence
investigations conducted with respect to the Other Founding Companies as
confidential in accordance with the provisions of Section 14 hereof. In
addition, HOLDING will cause each of the Other Agreements, binding each of the
Other Founding Companies, to contain a provision similar to this Section 7.1
requiring each such Other Founding Company, its stockholders, directors,
officers, representatives, employees and agents to keep confidential any
information obtained by such Other Founding Company and to provide the COMPANY
with reasonable access and information as will be provided by the COMPANY
pursuant to this Section 7.1(a).
(b) Between the date of this Agreement and the Closing Date, HOLDING will
afford to the officers and authorized representatives of the COMPANY reasonable
access during normal business hours and upon prior written notice to all of
HOLDING's and NEWCO's sites, properties, books and records and will furnish the
COMPANY with such additional financial and operating data and other information
as to the business and properties of HOLDING and NEWCO as the COMPANY may from
time to time reasonably request. HOLDING and NEWCO will cooperate with the
COMPANY, its representatives, auditors and counsel in the preparation of any
documents or other material which may be required in connection with the
transactions contemplated by this Agreement. The COMPANY will cause all
information obtained in connection with the negotiation and performance of this
Agreement to be treated as confidential in accordance with the provisions of
Section 14 hereof.
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7.2 Conduct of Business Pending Closing. Between the date of this
Agreement and the Closing Date, the COMPANY will, except (x) as set forth on
Schedule 7.2 or (y) as requested by HOLDING:
(i) carry on its business in the ordinary course substantially as
conducted heretofore and not introduce any new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform in all material respects its obligations under
agreements relating to or affecting its assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) maintain and preserve its business organization intact and use
commercially reasonable efforts to retain its present key employees and to
maintain relationships with suppliers, customers and others having
business relations with the COMPANY;
(vi) maintain compliance in all material respects with all permits,
laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental
authorities;
(vii) maintain present debt and lease instruments in accordance with
their respective terms and not enter into new or amended debt or lease
instruments, provided that debt and/or lease instruments may be replaced
if such replacement instruments are on terms at least as favorable to the
COMPANY as the instruments being replaced; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
7.3 Prohibited Activities. Except as disclosed on Schedule 7.3, between
the date hereof and the Closing Date, the COMPANY will not, without the prior
written consent of HOLDING:
(i) make any change in its Articles or Certificate of Incorporation
or By-laws;
(ii) grant or issue any securities, options, warrants, calls,
conversion rights or commitments of any kind relating to its securities of
any kind other than in connection with the exercise of options or warrants
listed on Schedule 5.4;
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(iii) declare or pay any dividend, or make any distribution in
respect of its stock whether now or hereafter outstanding, or purchase,
redeem or otherwise acquire or retire for value any shares of its stock;
(iv) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditure, except if it is in
the ordinary course of business (consistent with past practice) or
involves an amount not in excess of $25,000;
(v) create, assume or permit to exist any mortgage, pledge or other
lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens
incurred in connection with the acquisition of equipment with an aggregate
cost not in excess of $25,000 necessary or desirable for the conduct of
the business of the COMPANY, (2) (A) liens for taxes either not yet due or
being contested in good faith and by appropriate proceedings (and for
which adequate reserves have been established and are being maintained) or
(B) materialmen's, mechanics', workers', repairmen's, employees' or other
like liens arising in the ordinary course of business consistent with past
practice (the liens set forth in clause (2) being referred to herein as
"Statutory Liens"), or (3) liens set forth on Schedule 5.10 or 5.15
hereto;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business consistent
with past practice;
(vii) negotiate for the acquisition of any business or the start-up
of any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim of the COMPANY; provided,
that the COMPANY may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
provided, further, that such adjustments shall not be deemed to be
included on Schedule 5.11 unless specifically listed thereon;
(x) commit a material breach or amend or terminate any material
contract, agreement, permit, license or other right to which the COMPANY
is a party or as to which it is a beneficiary; or
(xi) enter into any other transaction outside the ordinary course of
its business consistent with past practice or prohibited hereunder.
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7.4 No Shop. None of the STOCKHOLDERS or the COMPANY, nor any agent,
officer, director, trustee or any representative of any of the foregoing, will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly: (i) solicit or initiate the
submission of proposals or offers from any person or entity for, (ii)
participate in any discussion pertaining to, or (iii) furnish any information to
any person or entity other than HOLDING or its authorized agents relating to,
any acquisition or purchase of all or a material amount of the assets of, or any
equity interest in, the COMPANY or a merger, consolidation or business
combination of the COMPANY.
7.5 Notice to Bargaining Agents. Prior to the Pre-Closing Date, the
COMPANY shall satisfy any requirement for notice of the transactions
contemplated by this Agreement under applicable collective bargaining
agreements. Promptly following delivery of such notice, the COMPANY shall
provide HOLDING with a copy of such required notice, as sent.
7.6 Agreements. On or prior to the Pre-Closing Date, the STOCKHOLDERS and
the COMPANY shall terminate (i) any stockholders' agreements, voting agreements,
voting trusts, options, warrants and employment agreements between the COMPANY
and any employee (other than the new employment agreements contemplated by
Section 9.12) and (ii) any existing agreement between the COMPANY and any
STOCKHOLDER (other than the agreements set forth in Schedule 9.7), in each case
on or prior to the Closing Date. A list of such agreements is set forth on
Schedule 7.6. The COMPANY shall provide a copy of each such termination
agreement to HOLDING on or prior to the Pre-Closing Date.
7.7 Notification of Certain Matters. The STOCKHOLDERS and the COMPANY
shall give prompt notice to HOLDING of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
representation or warranty of the COMPANY or the STOCKHOLDERS contained herein
to be untrue or inaccurate in any material respect at or prior to the
Pre-Closing and (ii) any material failure of any STOCKHOLDER or the COMPANY to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by such person hereunder. HOLDING and NEWCO shall give prompt
notice to the COMPANY of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty of HOLDING or NEWCO contained herein to be untrue or
inaccurate in any material respect at or prior to the Pre-Closing and (ii) any
material failure of HOLDING or NEWCO to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder. The
delivery of any notice pursuant to this Section 7.7 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 7.8, (ii) modify
the conditions set forth in Sections 8 and 9, or (iii) limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
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7.8 Amendment of Schedules. (a) Each party hereto agrees that, with
respect to the representations and warranties of such party contained in this
Agreement, such party shall have the continuing obligation until the Closing
Date to supplement or amend promptly the Schedules hereto with respect to any
matter hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules, provided however, that supplements and amendments to Schedules 5.10,
5.11, 5.14 and 5.15 shall only have to be delivered at the Pre-Closing Date,
unless such Schedule is to be amended to reflect an event occurring other than
in the ordinary course of business consistent with past practice.
(b) Prior to the anticipated effectiveness of the Registration Statement,
and notwithstanding the foregoing clause (a), the provisions of this clause (b)
shall apply: no amendment or supplement to a Schedule prepared by the COMPANY or
the STOCKHOLDERS that constitutes or reflects an event or occurrence that would
have a Material Adverse Effect may be made unless HOLDING and a majority of the
Founding Companies other than the COMPANY consent to such amendment or
supplement; and no amendment or supplement to a Schedule prepared by HOLDING or
NEWCO that constitutes or reflects an event or occurrence that would have a
Material Adverse Effect may be made unless a majority of the Founding Companies
consent to such amendment or supplement. In the event that one of the Other
Founding Companies seeks to amend or supplement a Schedule pursuant to Section
7.8 of one of the Other Agreements, and such amendment or supplement constitutes
or reflects an event or occurrence that would have a Material Adverse Effect on
such Other Founding Company or upon HOLDING, then HOLDING shall give the COMPANY
notice promptly after it has knowledge thereof, which notice shall give in
reasonable detail the facts and circumstances underlying such amendment or
supplement. If HOLDING and a majority of the Founding Companies consent to such
amendment or supplement, then such amendment or supplement shall become
effective whether or not the COMPANY has given its consent; provided, that if
such amendment or supplement constitutes or reflects an event or occurrence that
would have a Material Adverse Effect on the Other Founding Company that is
proposing such amendment or supplement or on HOLDING and the COMPANY does not
consent (or is not deemed to have consented) to such amendment or supplement,
then the COMPANY shall have the right to terminate this Agreement by notice to
HOLDING given prior to the earlier of the Effective Time of the Merger and the
fifth day following the date on which HOLDING gives notice to the COMPANY
seeking its consent to such amendment or supplement. Consent shall have been
deemed given for all purposes of this Agreement by HOLDING or any Founding
Company if no response is received from HOLDING or any such Founding Company
within 24 hours following receipt of notice of such amendment or supplement (or
sooner if required by the exigencies of the circumstances under which such
consent is requested). In the event that the COMPANY seeks to amend or
supplement a Schedule pursuant to this Section 7.8 and HOLDING and a majority of
the Other Founding Companies do not consent (or are not deemed to have
consented) to such amendment or supplement, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 12.1(i) hereof. In the
event that HOLDING or NEWCO seeks to amend or supplement a Schedule pursuant to
this Section 7.8 and a majority of the Founding Companies do not consent
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(or are not deemed to have consented) to such amendment or supplement, this
Agreement shall be deemed terminated by mutual consent as set forth in Section
12.1(i) hereof.
(c) For all purposes of this Agreement, including without limitation for
purposes of determining whether the conditions set forth in Sections 8.1 and 9.1
have been fulfilled, the Schedules hereto shall be deemed to be the Schedules as
amended or supplemented pursuant to this Section 7.8. No party to this Agreement
shall be liable to any other party if this Agreement shall be terminated
pursuant to the provisions of this Section 7.8, except that, notwithstanding
anything to the contrary contained in this Agreement, if the COMPANY or the
STOCKHOLDERS on the one hand, or HOLDING or NEWCO on the other hand, amends or
supplements a Schedule which results in a termination of this Agreement and such
amendment or supplement arises out of or reflects facts or circumstances which
such party knew about at the time of execution of this Agreement or if such
amendment or supplement otherwise is proposed in bad faith, such party shall pay
or reimburse HOLDING and NEWCO or the COMPANY and the STOCKHOLDERS, as the case
may be, for all of the legal, accounting and other out of pocket costs
reasonably incurred in connection with this Agreement and the IPO as it relates
to HOLDING, NEWCO, the COMPANY and the STOCKHOLDERS.
7.9 Cooperation in Preparation of Registration Statement. The COMPANY and
STOCKHOLDERS shall furnish or cause to be furnished to HOLDING and the
Underwriters all of the information concerning the COMPANY and the STOCKHOLDERS
requested by HOLDING or the Underwriters for inclusion in, and will cooperate
with HOLDING and the Underwriters in the preparation of, the Registration
Statement and the prospectus included therein (including audited and unaudited
financial statements, prepared in accordance with generally accepted accounting
principles, in form suitable for inclusion in the Registration Statement). The
COMPANY and the STOCKHOLDERS agree promptly to advise HOLDING if at any time
during the period in which a prospectus relating to the offering is required to
be delivered under the Securities Act, any information contained in the
prospectus concerning the COMPANY or the STOCKHOLDERS contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
to provide the information needed to correct such inaccuracy. Insofar as the
information relates solely to the COMPANY or the STOCKHOLDERS, the COMPANY
represents and warrants as to such information with respect to itself, and each
STOCKHOLDER represents and warrants, as to such information with respect to the
COMPANY and himself or herself, that the Registration Statement at its effective
date, at the date of the Final Prospectus (as defined in the Underwriting
Agreement), the Preliminary Prospectus (as defined in the Underwriting
Agreement), and each amendment to the Registration Statement, and at each
closing date with respect to the IPO under the Underwriting Agreement (including
with respect to any over-allotment option) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
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7.10 Final Financial Statements. The COMPANY shall provide prior to the
Closing Date, and HOLDING shall have had sufficient time prior thereto to
review, the unaudited consolidated balance sheets of the COMPANY as of the end
of each fiscal quarter following the Balance Sheet Date that ends at least 45
days prior to the Closing Date (or if sooner, that ends on the 135th day
following the end of the prior fiscal quarter for which financial statements
were provided to HOLDING pursuant to Section 5.9 or this Section 7.10), and the
unaudited consolidated statements of income, cash flows and retained earnings of
the COMPANY for all fiscal quarters ended after the Balance Sheet Date,
disclosing no material adverse change in the financial condition of the COMPANY
or the results of its operations from the financial statements as of the Balance
Sheet Date. Upon delivery of such financial statements, each STOCKHOLDER (except
for those STOCKHOLDERS listed on Schedule 5(A)) shall be deemed to represent and
warrant, jointly and severally to HOLDING and NEWCO that (a) such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as noted therein) and (b) except as noted in such financial statements,
all of such financial statements present fairly in all material respects the
financial position of the COMPANY as of the dates indicated thereon and the
results of operations and cash flows of the COMPANY for the periods indicated
thereon.
7.11 Further Assurances. The parties hereto agree to execute and deliver,
or cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry out
the transactions contemplated hereby.
7.12 Authorized Capital. HOLDING shall maintain its authorized capital
stock as set forth in the Registration Statement filed with the SEC except for
such changes in authorized capital stock as are made to respond to comments made
by the SEC or requirements of any exchange or automated trading system for which
application is made to register the HOLDING Stock.
8. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDERS AND THE COMPANY
The obligations of the STOCKHOLDERS and the COMPANY with respect to
actions to be taken on the Pre-Closing Date and, to the extent specified in this
Section 8, on the Closing Date, are subject to the satisfaction or waiver on or
prior to the Pre-Closing Date and/or the Closing Date, as the case may be, of
all of the conditions set forth in this Section 8. As of the Pre-Closing Date
and/or the Closing Date, as the case may be, all conditions not satisfied shall
be deemed to have been waived by the COMPANY and the STOCKHOLDERS unless such
parties have objected by notifying HOLDING in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty
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for all purposes of this Agreement except with respect to the fraud or
intentional misconduct of the party making such representation and warranty.
8.1 Representations and Warranties. All representations and warranties of
HOLDING and NEWCO contained in Section 6 and Section 17 shall be true and
correct in all material respects on the date hereof and on and as of each of the
Pre-Closing Date and the Closing Date as though such representations and
warranties had been made on and as of each of the Pre-Closing Date and the
Closing Date; and certificates to the foregoing effect dated each of the
Pre-Closing Date and the Closing Date, as the case may be, and signed by the
President or any Vice President of HOLDING shall have been delivered to the
STOCKHOLDERS.
8.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with and performed by HOLDING and NEWCO on or
before each of the Pre-Closing Date and the Closing Date shall have been duly
complied with and performed in all material respects on or before each of the
Pre-Closing Date and the Closing Date, as the case may be; and certificates to
the foregoing effect dated each of the Pre-Closing Date and the Closing Date and
signed by the President or any Vice President of HOLDING shall have been
delivered to the STOCKHOLDERS.
8.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of the COMPANY as a result of which
the management of the COMPANY deems it impracticable to proceed with the
transactions hereunder.
8.4 Opinions of Counsel. The COMPANY shall have received opinions from
counsel for HOLDING, dated the Pre-Closing Date, in the forms annexed hereto as
Annex VI and as Annex VIII.
8.5 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
8.6 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made, and no
action or proceeding shall have been instituted or threatened to restrain or
prohibit HOLDING's acquisition of the COMPANY Stock.
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8.7 Good Standing Certificates. HOLDING and NEWCO each shall have
delivered to the COMPANY a certificate, dated as of a date no earlier than five
days prior to the Pre-Closing Date, duly issued by the Delaware Secretary of
State and in each state in which HOLDING or NEWCO is authorized to do business,
showing that each of HOLDING and NEWCO is in good standing and authorized to do
business and that all state franchise and/or income tax returns and taxes for
HOLDING and NEWCO, respectively, for all periods prior to the Pre-Closing have
been filed and paid.
8.8 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to
HOLDING, NEWCO or any of the Other Founding Companies which would constitute a
Material Adverse Effect on HOLDING, NEWCO and the Founding Companies taken as a
whole.
8.9 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
8.10 Secretary's Certificate. The COMPANY shall have received a
certificate or certificates, dated the Pre-Closing Date and the Closing Date and
signed by the secretary of HOLDING and of NEWCO, certifying the truth and
correctness of attached copies of HOLDING's and NEWCO's respective Certificates
of Incorporation (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the boards of directors and, if required, the
stockholders of HOLDING and NEWCO approving HOLDING's and NEWCO's entering into
this Agreement and the consummation of the transactions contemplated hereby.
8.11 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have been afforded the opportunity to enter into an employment agreement
mutually acceptable to such person and HOLDING. Each such employment agreement
will be substantially identical in all material respects to the employment
agreements entered into pursuant to Section 8.11 of the Other Agreements (the
"Other Employment Agreements"). Each of the persons listed on Schedule 9.12 will
have the opportunity to review each such Other Employment Agreement.
8.12 Director Indemnification. HOLDING shall have obtained directors and
officers liability insurance from a reputable insurance company in type and
amount approved by at least five of the Founding Companies.
8.13 Chief Executive Officer. Rodney C. Gilbert or another individual
approved by at least five of the Founding Companies shall have been appointed as
Chief Executive Officer of HOLDING.
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9. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HOLDING AND NEWCO
The obligations of HOLDING and NEWCO with respect to actions to be taken
on the Pre-Closing Date and, to the extent specified in this Section 9, on the
Closing Date, are subject to the satisfaction or waiver on or prior to the
Pre-Closing Date and/or the Closing Date, as the case may be, of all of the
conditions set forth in this Section 9. As of the Pre-Closing Date and/or the
Closing Date, as the case may be, all conditions not satisfied shall be deemed
to have been waived by HOLDING and NEWCO unless such parties have objected by
notifying the COMPANY and the STOCKHOLDERS in writing of such objection on or
before the closing on the Pre-Closing Date or consummation of the transactions
on the Closing Date, respectively; provided, that any waiver of compliance with
a particular representation or warranty contained in this Agreement shall
operate as a waiver of compliance with such representation and warranty for all
purposes of this Agreement except with respect to the fraud or intentional
misconduct of the party making such representation and warranty.
9.1 Representations and Warranties. All the representations and warranties
of the STOCKHOLDERS and the COMPANY contained in this Agreement shall be true
and correct in all material respects on the date hereof and on and as of each of
the Pre-Closing Date and the Closing Date with the same effect as though such
representations and warranties had been made on and as of each of the
Pre-Closing Date and the Closing Date; and the STOCKHOLDERS shall have delivered
to HOLDING certificates dated each of the Pre-Closing Date and the Closing Date,
as the case may be, and signed by them to such effect.
9.2 Performance of Obligations. All of the terms, covenants and conditions
of this Agreement to be complied with or performed by the STOCKHOLDERS and the
COMPANY on or before each of the Pre-Closing Date and the Closing Date shall
have been duly performed or complied with in all material respects on or before
each of the Pre-Closing Date and the Closing Date, as the case may be; and the
STOCKHOLDERS shall have delivered to HOLDING certificates dated the Pre-Closing
Date and the Closing Date, respectively, and signed by them to such effect.
9.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to restrain
or prohibit the Merger or the IPO and no governmental agency or body shall have
taken any other action or made any request of HOLDING as a result of which the
management of HOLDING deems it impracticable to proceed with the transactions
hereunder.
9.4 Secretary's Certificate. HOLDING shall have received a certificate or
certificates, dated each of the Pre-Closing Date and the Closing Date and signed
by the secretary of the COMPANY, certifying the truth and correctness of
attached copies of the COMPANY's Certificate or Articles of Incorporation
(including amendments thereto), By-Laws (including
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amendments thereto), and resolutions of the board of directors and the
STOCKHOLDERS approving the COMPANY's entering into this Agreement and the
consummation of the transactions contemplated hereby.
9.5 No Material Adverse Change. As of the Pre-Closing Date and as of the
Closing Date, no event or circumstance shall have occurred with respect to the
COMPANY which would constitute a Material Adverse Effect, and the COMPANY shall
not have suffered any material loss or damages to any of its properties or
assets, whether or not covered by insurance, which change, loss or damage
materially affects or impairs the ability of the COMPANY to conduct its
business.
9.6 STOCKHOLDERS' Release. The STOCKHOLDERS and the individuals listed on
Schedule 9.6 shall have delivered to HOLDING an instrument dated the Pre-Closing
Date releasing the COMPANY, to the maximum extent permitted by law, from any and
all (i) claims of the STOCKHOLDERS against the COMPANY and (ii) obligations of
the COMPANY to the STOCKHOLDERS, except for (x) items specifically identified on
Schedules 5.10, 5.15 and 9.6 as being claims of or obligations to the
STOCKHOLDERS and (y) continuing obligations to the STOCKHOLDERS relating to
their employment by the COMPANY.
9.7 Termination of Related Party Agreements. Except as set forth on
Schedule 9.7, or as contemplated by Section 9.12, all existing agreements
between the COMPANY and the STOCKHOLDERS or any Affiliate of any STOCKHOLDER
shall have been canceled effective prior to or as of the Closing Date.
9.8 Opinion of Counsel. HOLDING shall have received one or more opinions
of counsel to the COMPANY and the STOCKHOLDERS, dated the Pre-Closing Date and
including a statement to the effect that it may be relied upon as of the Closing
Date (or in the absence of such a statement, a separate opinion of such counsel
dated the Closing Date), substantially in the form annexed hereto as Annex VII,
and covering matters customary under the circumstances or covering such
additional matters as the Underwriters may reasonably request, and the
Underwriters shall have received a copy of the same opinion addressed to them.
9.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made and all
consents and approvals of third parties listed on Schedule 5.23 shall have been
obtained.
9.10 Good Standing Certificates. The COMPANY shall have delivered to
HOLDING a certificate, dated as of a date no earlier than five days prior to the
Pre-Closing Date, duly issued by the appropriate governmental authority in the
COMPANY's state of incorporation and, unless waived by HOLDING, in each state in
which the COMPANY is authorized to do business, showing the COMPANY is in good
standing and authorized to do business and if
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applicable, that all state franchise and/or income tax returns and taxes for the
COMPANY for all periods prior to the Pre-Closing have been filed and paid.
9.11 Registration Statement. The Registration Statement shall have been
declared effective by the SEC and no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceeding therefor shall
have been instituted or shall be pending or contemplated under the 1933 Act and
the Underwriters shall have agreed to acquire on a firm commitment basis,
subject to the conditions set forth in the Underwriting Agreement, on terms such
that the aggregate value of the cash and the number of shares of HOLDING Stock
to be received by the STOCKHOLDERS is not less than the Minimum Value set forth
on Annex III.
9.12 Employment Agreements. Each of the persons listed on Schedule 9.12
shall have entered into an employment agreement mutually acceptable to such
person and HOLDING.
9.13 Closing of IPO. The closing of the sale of the HOLDING Stock to the
Underwriters in the IPO shall have occurred simultaneously with the Closing Date
hereunder.
9.14 FIRPTA Certificate. Each STOCKHOLDER shall have delivered to HOLDING
a certificate to the effect that he or she is not a foreign person pursuant to
Section 1.1445-2(b) of the Treasury regulations.
10. COVENANTS OF HOLDING AND THE STOCKHOLDERS AFTER CLOSING
10.1 Release From Guarantees; Repayment of Certain Obligations. HOLDING
shall use its best efforts to have the STOCKHOLDERS released from the guarantees
listed on Schedule 10.1 of the indebtedness that they personally guaranteed and
from the pledges of the assets listed on Schedule 10.1 that they pledged to
secure such indebtedness for the benefit of the COMPANY, with all such
guarantees on indebtedness being assumed by HOLDING. In the event that HOLDING
cannot obtain such releases from the lenders of any such guaranteed indebtedness
on or prior to the 90th day subsequent to the Closing Date, HOLDING shall pay
off or otherwise refinance or retire such indebtedness and, if HOLDING cannot
obtain such releases on or prior to the Closing Date, then HOLDING agrees to
indemnify the STOCKHOLDERS against any and all claims made against them by the
beneficiaries of such guarantees which arise as a result of HOLDING's failure to
cause such guarantees to be released on or prior to the Closing.
10.2 Preparation and Filing of Tax Returns.
(a) The COMPANY shall, if possible, file or cause to be filed all separate
Returns of any Acquired Party for all taxable periods that end on or before the
Closing Date. Each STOCKHOLDER shall pay or cause to be paid all Tax liabilities
(in excess of all amounts
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already paid with respect thereto or properly accrued or reserved with respect
thereto on the COMPANY Financial Statements) shown by such Returns to be due.
(b) HOLDING shall file or cause to be filed all separate Returns of, or
that include, any Acquired Party for all taxable periods ending after the
Closing Date.
(c) Each party hereto shall, and shall cause its subsidiaries and
affiliates to, provide to each of the other parties hereto such cooperation and
information as any of them reasonably may request in filing any Return, amended
Return or claim for refund, determining a liability for Taxes or a right to
refund of Taxes or in conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of all
relevant portions of relevant Returns, together with relevant accompanying
schedules and relevant work papers, relevant documents relating to rulings or
other determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each party
shall make its employees reasonably available on a mutually convenient basis at
its cost to provide explanation of any documents or information so provided.
Subject to the preceding sentence, each party required to file Returns pursuant
to this Agreement shall bear all costs of filing such Returns.
10.3 Directors and Officers. The persons named in the Registration
Statement shall be appointed as directors and elected as officers of HOLDING, as
and to the extent set forth in the Registration Statement, promptly following
the Closing Date.
10.4 Preservation of Employee Benefit Plans. Following the Closing Date,
HOLDING shall not require that the COMPANY terminate any health insurance, life
insurance or 401(k) plan in effect at the COMPANY until such time as HOLDING is
able to replace such plan with a plan that is applicable to HOLDING and all of
its then existing subsidiaries. HOLDING shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing plans,
provided, that any new health insurance plan shall provide for coverage for
preexisting conditions. Notwithstanding the foregoing, on or following the
Closing Date, HOLDING may require that the COMPANY freeze or terminate any
defined benefit pension plans in effect at the COMPANY at any time, subject to
applicable laws, and HOLDING shall have no obligation to provide replacement
defined benefit pension plans.
10.5 Director Indemnification. HOLDING agrees to indemnify each
STOCKHOLDER (or for any STOCKHOLDER that is a trust, its trustees or
beneficiaries, as applicable), if any, who will become a director of HOLDING on
the Closing Date, as set forth in the Registration Statement, from all
liabilities he or she may incur as a director of HOLDING, except for all
liabilities arising from (i) any breach of such person's duty of loyalty to
HOLDING or its stockholders or subsidiaries, (ii) any acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) any violations of Section 174 of the Delaware GCL or (iv) any
transactions from which the director derived an improper personal benefit.
10.6 HOLDING Options. HOLDING agrees that at the Closing, it shall reserve
and set aside options to purchase shares of HOLDING Stock to be allocated to the
officers and employees of the COMPANY and the other Founding Companies
representing, in the aggregate, 6% of the HOLDING Stock outstanding as of the
close of the IPO. Half of such options shall be allocated equally among the
COMPANY and the Other Founding Companies, and the other half of such options
shall be allocated among the COMPANY and the Other Founding Companies based on
their relative valuations determined by reference to the aggregate consideration
to be paid to their respective stockholders pursuant to this Agreement and the
Other Agreements. Following consummation of the IPO, the COMPANY's Board of
Directors will be entitled to determine the recipients of such option grants
subject to the terms of HOLDING's stock option plan and applicable law.
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11. INDEMNIFICATION
The STOCKHOLDERS, HOLDING and NEWCO each make the following covenants that
are applicable to them, respectively:
11.1 General Indemnification by the STOCKHOLDERS. The STOCKHOLDERS
covenant and agree that they, jointly and severally (except for those
STOCKHOLDERS listed on Schedule 5(A), whose indemnity obligations shall be on a
several and not joint basis), will indemnify, defend, protect and hold harmless
HOLDING, NEWCO, the COMPANY and the Surviving Corporation at all times, from and
after the date of this Agreement until the Expiration Date, from and against all
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
costs and expenses (including specifically, but without limitation, reasonable
attorneys' fees and expenses) incurred by HOLDING, NEWCO, the COMPANY or the
Surviving Corporation as a result of or arising from (i) subject to the survival
periods set forth in Section 5, any breach of the representations and warranties
of the STOCKHOLDERS or the COMPANY set forth herein or on the schedules or
certificates delivered in connection herewith as of the date made and as of the
date any such representations and warranties are re-confirmed, (ii) any breach
on the part of the STOCKHOLDERS or the COMPANY of any agreement under this
Agreement, (iii) any liability under the 1933 Act, the 1934 Act or other Federal
or state law or regulation, at common law or otherwise, either (1) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact relating to the COMPANY or the STOCKHOLDERS, and provided in writing to
HOLDING or its counsel by the COMPANY or the STOCKHOLDERS for inclusion in the
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (2) arising out of or based upon any
omission or alleged omission to state therein a material fact relating to the
COMPANY or the STOCKHOLDERS required to be stated therein or necessary to make
the statements therein not misleading and not provided to HOLDING or its counsel
by the COMPANY or its STOCKHOLDERS for inclusion in the Registration Statement
or any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, (iv) the matters described on Schedule 11.1(iv), (v) any Tax (in excess
of all amounts accrued therefor on the Balance Sheet included in the COMPANY
Financial Statements) relating to a period ending on or before the Closing Date
(or any portion of a period ending after the Closing Date that relates to the
portion of such period ending on the Closing Date, using the closing of the
books method) that has not been paid on or before the Closing Date, or (vi) any
Tax imposed upon or relating to any third party for a pre- Closing Date period,
including, in each case, any such Tax for which an Acquired Party may be liable
under Section 1.1502-6 of the Treasury Regulations (or any similar provisions of
state, local of foreign law), as a transferee or successor, by contract or
otherwise, provided, however, (A) that in the case of any indemnity arising
pursuant to clause (iii), such indemnity shall not inure to the benefit of
HOLDING, NEWCO, the COMPANY or the Surviving Corporation to the extent that such
untrue statement (or alleged untrue statement) was made in, or omission (or
alleged omission) occurred in, any preliminary prospectus and the STOCKHOLDERS
provided, in writing, corrected information to HOLDING's counsel and to HOLDING
for inclusion in the
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final prospectus, and such information was not so included or properly
delivered, and (B) that each STOCKHOLDER shall be liable for indemnification
obligations pursuant to this Section 11.1 that are attributable to a breach of
any representation, warranty or agreement made in Sections 5.31 through 5.35 by
that STOCKHOLDER and not for breach of the representations, warranties or
agreements made in Sections 5.31 through 5.35 by any other STOCKHOLDER.
11.2 Indemnification by HOLDING. HOLDING covenants and agrees that it will
indemnify, defend, protect and hold harmless the COMPANY and the STOCKHOLDERS at
all times from and after the date of this Agreement until the Expiration Date,
from and against all claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, costs and expenses (including specifically, but
without limitation, reasonable attorneys' fees and expenses of investigation)
incurred by the COMPANY or the STOCKHOLDERS as a result of or arising from (i)
any breach by HOLDING or NEWCO of its representations and warranties set forth
herein or on the schedules or certificates delivered in connection herewith as
of the date made and as of the date any such representations and warranties are
re-confirmed, (ii) any breach on the part of HOLDING or NEWCO of any agreement
under this Agreement, (iii) any liability which the STOCKHOLDERS may incur due
to HOLDING's or NEWCO's failure to be responsible for the liabilities and
obligations of the COMPANY as provided in Section 1 hereof (except to the extent
that HOLDING or NEWCO has claims against the STOCKHOLDERS by reason of such
liabilities); (iv) any liability under the 1933 Act, the 1934 Act or other
Federal or state law or regulation, at common law or otherwise, either (1)
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact relating to HOLDING or NEWCO included in any preliminary
prospectus, the Registration Statement or any prospectus forming a part thereof,
or any amendment thereof or supplement thereto, or (2) arising out of or based
upon any omission or alleged omission to state therein a material fact relating
to HOLDING or NEWCO required to be stated therein or necessary to make the
statements therein not misleading or (v) the matters described on Schedule
11.2(v).
11.3 Third Person Claims. Promptly after any party hereto (hereinafter the
"Indemnified Party") has received notice of or has knowledge of any claim by a
person or entity not a party to this Agreement ("Third Person"), or the
commencement of any action or proceeding by a Third Person, the Indemnified
Party shall, as a condition precedent to a claim with respect thereto being made
against any party obligated to provide indemnification pursuant to Section 11.1
or 11.2 hereof (hereinafter the "Indemnifying Party"), give the Indemnifying
Party written notice of such claim or the commencement of such action or
proceeding. Such notice shall state the nature and the basis of such claim and a
reasonable estimate of the amount thereof. The Indemnifying Party shall have the
right to defend and settle, at its own expense and by its own counsel, any such
matter so long as the Indemnifying Party pursues the same in good faith and
diligently, provided that the Indemnifying Party shall not settle any action or
proceeding without the written consent of the Indemnified Party unless the
Indemnified Party is fully released and exonerated from all matters related to
the claim. If the Indemnifying Party undertakes to defend or settle, it shall
promptly notify the Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party and its counsel in
the
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defense thereof and in any settlement thereof. Such cooperation shall include,
but shall not be limited to, furnishing the Indemnifying Party with any books,
records or information reasonably requested by the Indemnifying Party that are
in the Indemnified Party's possession or control. All Indemnified Parties shall
endeavor to use the same counsel, which shall be the counsel selected by
Indemnifying Party, provided that if counsel to the Indemnifying Party shall
have a conflict of interest in the opinion of such counsel that prevents counsel
for the Indemnifying Party from representing the Indemnified Party, the
Indemnified Party shall have the right to participate in such matter through
counsel of its own choosing and the Indemnifying Party will reimburse the
Indemnified Party for the reasonable expenses of its counsel and experts. After
the Indemnifying Party has notified the Indemnified Party of its intention to
undertake to defend or settle any such asserted liability, and for so long as
the Indemnifying Party diligently pursues such defense, the Indemnifying Party
shall not be liable for any additional legal expenses or out-of-pocket expenses
incurred by the Indemnified Party in connection with any defense or settlement
of such asserted liability, except (i) as set forth in the preceding sentence
and (ii) to the extent such participation is requested by the Indemnifying
Party, in which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses and out-of-pocket
expenses. If the Indemnifying Party desires to accept a final and complete
settlement of any such Third Person claim, which settlement provides solely for
the payment of monetary damages and effects a full release of the Indemnified
Party from all matters related to the claim, and the Indemnified Party refuses
to consent to such settlement, then the Indemnifying Party's liability under
this Section with respect to such Third Person claim shall be limited to the
amount so offered in settlement to said Third Person, and the Indemnifying
Party, upon payment of such settlement amount to such Third Person, shall be
deemed released from any and all obligation or liability with respect thereto
and the Indemnified Party shall reimburse the Indemnifying Party for any
additional costs of defense that the Indemnifying Party subsequently incurs with
respect to such claims and all additional costs of settlement or judgment. If
the Indemnifying Party does not undertake to defend such matter to which the
Indemnified Party is entitled to indemnification hereunder, or fails diligently
to pursue such defense, the Indemnified Party may undertake such defense through
counsel of its choice, at the cost and expense of the Indemnifying Party, and
the Indemnified Party may settle such matter, and the Indemnifying Party shall
reimburse the Indemnified Party for the amount paid in such settlement and any
other liabilities or expenses incurred by the Indemnified Party in connection
therewith, provided, however, that under no circumstances shall the Indemnified
Party settle any Third Person claim without the written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
All settlements hereunder shall effect a complete release of the Indemnified
Party, unless the Indemnified Party otherwise agrees in writing. The parties
hereto will make appropriate adjustments for any tax benefits or detriments and
any insurance proceeds in determining the amount of any indemnification
obligation under this Section.
11.4 Exclusive Remedy. The indemnification provided for in this Section 11
shall (except as prohibited by ERISA) be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement against another party,
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provided that nothing herein shall be construed to limit the right of a party,
in a proper case, to seek injunctive relief for a breach of this Agreement.
11.5 Limitations on Indemnification. Notwithstanding the foregoing,
HOLDING, NEWCO, the Surviving Corporation and the other persons or entities
indemnified pursuant to Section 11.1 or 11.2 shall not assert any claim for
indemnification hereunder against the STOCKHOLDERS unless, and solely to the
extent that, the aggregate of all claims which such persons and entities may
have against such STOCKHOLDERS shall exceed, in the aggregate for all such
claims, 2.0% of the sum of (i) the cash paid to STOCKHOLDERS plus (ii) the value
(determined in accordance with the last paragraph of Section 11.5) of the
HOLDING Stock delivered to STOCKHOLDERS (the "Indemnification Threshold"),
provided, however, that except with respect to the matters specified on Schedule
11.5, HOLDING, NEWCO, the Surviving Corporation and the other persons or
entities indemnified pursuant to Section 11.1 may assert and shall be
indemnified for any claim under Section 11.1(iv) or 11.1(v) at any time,
regardless of whether the aggregate of all claims which such persons and
entities may have against any STOCKHOLDER or all STOCKHOLDERS exceeds the
Indemnification Threshold, it being understood that the amount of any such claim
under Section 11.1(iv) or 11.1(v) shall not be counted towards the
Indemnification Threshold, other than with respect to the matters specified in
Schedule 11.5 which shall count toward the Indemnification Threshold. The
STOCKHOLDERS shall not assert any claim for indemnification hereunder against
HOLDING or NEWCO until such time as, and solely to the extent that, the
aggregate of all claims which the STOCKHOLDERS may have against HOLDING or NEWCO
shall exceed, in the aggregate for all such claims, $100,000, provided, however,
that the STOCKHOLDERS and the other persons or entities indemnified pursuant to
Section 11.2 may assert and shall be indemnified for any claim under Section
11.2(v) at any time, regardless of whether the aggregate of all claims which
such persons and entities may have against any of HOLDING or NEWCO exceeds
$100,000, it being understood that the amount of any such claim under Section
11.2(v) shall not be counted towards such $100,000 amount. No person shall be
entitled to indemnification under this Section 11 if and to the extent that such
person's claim for indemnification is directly or indirectly related to a breach
by such person of any representation, warranty, covenant or other agreement set
forth in this Agreement.
Notwithstanding any other term of this Agreement (except the proviso to
this sentence), no STOCKHOLDER shall be liable under this Section 11 for an
amount which exceeds the amount of proceeds received by such STOCKHOLDER in
connection with the Merger, provided that a STOCKHOLDER's indemnification
obligations pursuant to Section 11.1(iv) or 11.1(v) shall not be limited.
Indemnity obligations hereunder may be satisfied through the payment of cash or
the delivery of HOLDING Stock, or a combination thereof as determined by the
Indemnifying Party in its sole discretion. For purposes of calculating the value
of the HOLDING Stock received or delivered by a STOCKHOLDER (for purposes of
determining the Indemnification Threshold, limitation on indemnity set forth in
the second preceding sentence and the amount of any indemnity paid), the HOLDING
Stock shall be valued at its initial public offering price as set forth in the
Registration Statement.
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12. TERMINATION OF AGREEMENT
12.1 Termination.This Agreement may be terminated at any time prior to the
Pre-Closing Date solely:
(i) by mutual consent of the boards of directors of HOLDING and the
COMPANY;
(ii) by the STOCKHOLDERS or the COMPANY (acting through its board of
directors), on the one hand, or by HOLDING (acting through its board of
directors), on the other hand, if the transactions contemplated by this
Agreement to take place at the Pre-Closing shall not have been consummated by
September 30, 1998, unless the failure of such transactions to be consummated is
due to the willful failure of the party seeking to terminate this Agreement to
perform any of its obligations under this Agreement to the extent required to be
performed by it prior to or on the Closing Date;
(iii) by the STOCKHOLDERS or the COMPANY, on the one hand, or by HOLDING,
on the other hand, if a material breach or default shall be made by the other
party in the observance or in the due and timely performance of any of the
covenants, agreements or conditions contained herein, and the curing of such
default shall not have been made on or before the Pre-Closing Date;
(iv) pursuant to Section 7.8 hereof; or
(v) pursuant to Section 4 hereof.
12.2 Liabilities in Event of Termination. Except as provided in Section
7.8 hereof, the termination of this Agreement will in no way limit any
obligation or liability of any party based on or arising from a breach or
default by such party with respect to any of its representations, warranties,
covenants or agreements contained in this Agreement including, but not limited
to, legal and audit costs and out of pocket expenses.
13. NONCOMPETITION
13.1 Prohibited Activities. The STOCKHOLDERS and the individuals listed on
Schedule 13.1(a) (who shall be deemed to be STOCKHOLDERS for all purposes of
this Section 13) will not, for a period commencing on the Closing Date and
ending on the date that is four (4) years following the Closing Date, for any
reason whatsoever, directly or indirectly, for themselves or on behalf of or in
conjunction with any other person, company, partnership, corporation or business
of whatever nature:
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(i) engage, as an officer, director, shareholder, owner, partner, joint
venturer, or in a managerial capacity, whether as an employee, independent
contractor, consultant or advisor, or as a sales representative, in any heating,
ventilation, air conditioning, energy or environmental services business in
direct competition with HOLDING or any of the subsidiaries thereof, within the
United States of America or within 100 miles of where the COMPANY or any of its
subsidiaries or any of the Other Founding Companies conducted business prior to
the effectiveness of the Merger (the "Territory") ;
(ii) call upon any person who is, at that time, within the Territory, an
employee of HOLDING (including the subsidiaries thereof) in a sales
representative or managerial capacity for the purpose or with the intent of
enticing such employee away from or out of the employ of HOLDING (including the
subsidiaries thereof), provided that each STOCKHOLDER shall be permitted to call
upon and hire any member of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or which has
been, within one (1) year prior to the Closing Date, a customer of HOLDING
(including the subsidiaries thereof), of the COMPANY or of any of the Other
Founding Companies within the Territory for the purpose of soliciting or selling
products or services in direct competition with HOLDING (or any of the
subsidiaries thereof) within the Territory;
(iv) call upon any prospective acquisition candidate, on any STOCKHOLDER's
own behalf or on behalf of any competitor in the heating, ventilation, air
conditioning, energy or environmental services business, which candidate, to the
actual knowledge of such STOCKHOLDER after due inquiry, was called upon by
HOLDING (including the subsidiaries thereof) or for which, to the actual
knowledge of such STOCKHOLDER after due inquiry, HOLDING (or any subsidiary
thereof) made an acquisition analysis, for the purpose of acquiring such entity;
or
(v) disclose customers, whether in existence or proposed, of the COMPANY
to any person, firm, partnership, corporation or business for any reason or
purpose whatsoever except to the extent that the COMPANY has in the past
disclosed such information to the public for valid business reasons.
Notwithstanding the above, (A) the foregoing covenants shall not be deemed
to prohibit any STOCKHOLDER from acquiring as an investment not more than one
percent (1%) of the capital stock of a competing business whose stock is traded
on a national securities exchange or over-the-counter, (B) the foregoing
covenants shall not be deemed to apply to any STOCKHOLDER listed on Schedule
13.1(b) and (C) John Davis shall be entitled to be a stockholder of, and to
spend, on average, up to 5% of his professional time with respect to the
business and operations of, Air Systems of Sacramento, Inc.
13.2 Damages. Because of the difficulty of measuring economic losses to
HOLDING as a result of a breach of the foregoing covenant, and because of the
immediate and irreparable
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damage that could be caused to HOLDING for which it would have no other adequate
remedy, each STOCKHOLDER agrees that, in the event of any breach or threatened
breach by such STOCKHOLDER, the foregoing covenant may be enforced by HOLDING by
injunctions and restraining orders.
13.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 13 impose a reasonable restraint on the
STOCKHOLDERS in light of the activities and business of HOLDING (including the
subsidiaries thereof) on the date of the execution of this Agreement and the
current plans of HOLDING.
13.4 Severability; Reformation. The covenants in this Section 13 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention of
the parties that such restrictions be enforced to the fullest extent which the
court deems reasonable, and this Agreement shall thereby be reformed.
13.5 Independent Covenant. All of the covenants in this Section 13 shall
be construed as an agreement independent of any other provision in this
Agreement, and the existence of any claim or cause of action of any STOCKHOLDER
against HOLDING (including the subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
HOLDING of such covenants. It is specifically agreed that the period of four (4)
years stated at the beginning of this Section 13, during which the agreements
and covenants of each STOCKHOLDER made in this Section 13 shall be effective,
shall be computed by excluding from such computation any time during which such
STOCKHOLDER is in violation of any provision of this Section 13. The covenants
contained in Section 13 shall not be affected by any breach of any other
provision hereof by any party hereto and shall have no effect if the
transactions contemplated by this Agreement are not consummated.
13.6 Materiality. The COMPANY and the STOCKHOLDERS hereby agree that this
covenant is a material and substantial part of this transaction.
14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
14.1 STOCKHOLDERS. The STOCKHOLDERS recognize and acknowledge that
they had in the past, currently have, and in the future may have, access to
certain confidential information of the COMPANY, the Other Founding Companies,
and/or HOLDING, such as operational policies, and pricing and cost policies that
are valuable, special and unique assets of the COMPANY's, the Other Founding
Companies' and/or HOLDING's respective businesses. The STOCKHOLDERS agree that
they will not disclose any such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of HOLDING, (b) following the
Pre-Closing, such
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information may be disclosed by the STOCKHOLDERS as is required in the course of
performing their duties for HOLDING or the Surviving Corporation and (c) to
counsel and other advisers, provided that such advisers (other than counsel)
agree to the confidentiality provisions of this Section 14.1, unless (i) such
information becomes known to the public generally through no fault of any of the
STOCKHOLDERS, (ii) disclosure is required by law or the order of any
governmental authority under color of law, provided, that prior to disclosing
any information pursuant to this clause (ii), the STOCKHOLDERS shall give prior
written notice thereof to HOLDING and provide HOLDING with the opportunity to
contest such disclosure, or (iii) the disclosing party reasonably believes that
such disclosure is required in connection with the defense of a lawsuit against
the disclosing party. In the event of a breach or threatened breach by any of
the STOCKHOLDERS of the provisions of this Section 14, HOLDING shall be entitled
to an injunction restraining such STOCKHOLDERS from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting HOLDING from pursuing any other available remedy for such breach or
threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, the
STOCKHOLDERS shall have none of the above-mentioned restrictions on their
ability to disseminate confidential information with respect to the COMPANY.
14.2 HOLDING and NEWCO. HOLDING and NEWCO recognize and
acknowledge that they had in the past and currently have access to certain
confidential information of the COMPANY, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of the
COMPANY's business. HOLDING and NEWCO agree that, prior to the Pre-Closing, or
if the Transactions contemplated by this Agreement are not consummated, they
will not use or disclose such confidential information to any person, firm,
corporation, association or other entity for any purpose or reason whatsoever,
except (a) to authorized representatives of the COMPANY, (b) to counsel and
other advisers, provided that such advisors (other than counsel) agree to the
confidentiality provisions of this Section 14.2, (c) to underwriters and their
counsel in connection with the registration statement and (d) to the Other
Founding Companies and their representatives who have agreed to maintain
confidentiality pursuant to Section 7.1(a), unless (i) such information becomes
known to the public generally through no fault of HOLDING or NEWCO, (ii)
disclosure is required by law or the order of any governmental authority under
color of law, provided, that prior to disclosing any information pursuant to
this clause (ii), HOLDING and NEWCO shall, if possible, give prior written
notice thereof to the COMPANY and the STOCKHOLDERS and provide the COMPANY and
the STOCKHOLDERS with the opportunity to contest such disclosure, or (iii) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by HOLDING or NEWCO of the provisions of
this Section, the COMPANY and the STOCKHOLDERS shall be entitled to an
injunction restraining HOLDING and NEWCO from disclosing, in whole or in part,
such confidential information. Nothing herein shall be construed as prohibiting
the COMPANY and the STOCKHOLDERS from pursuing any other available remedy for
such breach or threatened breach, including the recovery of damages. Upon any
termination of this
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Agreement, HOLDING and NEWCO shall return all confidential information of the
Company then in their possession.
14.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Sections 14.1 and 14.2, and
because of the immediate and irreparable damage that would be caused for which
they would have no other adequate remedy, the parties hereto agree that, in the
event of a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunctions and restraining orders.
14.4 Survival. The obligations of the parties under this Article 14 shall
survive for a period of two (2) years from the Closing Date, or in the event
this Agreement in terminated, for a period of two (2) years from the date of
termination.
15. TRANSFER RESTRICTIONS
15.1 Transfer Restrictions. For a period of three years from the Closing
Date, except pursuant to Section 16 hereof or for purposes of satisfying
indemnification obligations hereunder, the STOCKHOLDER shall not (i) sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint or otherwise
dispose (a "Transfer") of (a) any shares of HOLDING Stock received by the
STOCKHOLDER pursuant to the terms hereof or (b) any interest (including, without
limitation, an option to buy or sell) in any such shares of HOLDING Stock, in
whole or in part, and no such attempted Transfer shall be treated as effective
for any purpose; or (ii) engage in any transaction, whether or not with respect
to any shares of HOLDING Stock or any interest therein, the intent or effect of
which is to reduce the risk of owning the shares of HOLDING Stock acquired
pursuant hereto (including, by way of example and not limitation, engaging in
put, call, short-sale, straddle or similar market transactions); provided, that
from and after the 24th month following the Closing Date, the STOCKHOLDER shall
be entitled to make such a Transfer of up to 50% of the number shares of HOLDING
Stock received by the STOCKHOLDER pursuant to the terms hereof; and, provided,
further, that from and after the 30th month following the Closing Date, the
STOCKHOLDER shall be entitled to make such a Transfer of up to 75% of the number
shares of HOLDING Stock received by the STOCKHOLDER pursuant to the terms
hereof. Notwithstanding the foregoing, (x) the STOCKHOLDER may Transfer shares
of HOLDING Stock to immediate family members (or trusts for the benefit of the
STOCKHOLDER or family members, the trustees of which so agree) (such family
members and trusts are referred to herein as "Permitted Transferees"); provided,
that the family member, trust, trustee, pledgee or other beneficiary of such
Transfer, encumbrance or pledge, as the case my be, agrees in writing prior to
such transaction to be bound by (1) the provisions of this Section as if a
STOCKHOLDER and party hereto and (2) the indemnification provisions set forth in
this Agreement as if a STOCKHOLDER and party hereto; and (y) the STOCKHOLDER may
encumber or pledge any of such shares of HOLDING Stock; and (z) John Davis shall
be entitled to grant options to purchase the shares of HOLDING Stock to be
received by him pursuant to this Agreement to certain employees of the COMPANY,
which options (i) will not exceed in the aggregate 15% of the shares of HOLDING
Stock to be received by him pursuant to this Agreement and (2) shall not vest
earlier than the 180th day following the Closing Date. The certificates
evidencing the HOLDING Stock delivered to the STOCKHOLDER pursuant to
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Section 3 of this Agreement will bear a legend substantially in the form set
forth below and containing such other information as HOLDING may deem necessary
or appropriate:
EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED BY THAT CERTAIN AGREEMENT AND
PLAN OF ORGANIZATION, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE COMPANY FOR PUBLIC INSPECTION, THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED,
TRANSFERRED, ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE
DISPOSED OF, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY
ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION PRIOR TO THE THIRD
ANNIVERSARY OF THE CLOSING DATE. UPON THE WRITTEN REQUEST OF THE HOLDER OF
THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
16. REGISTRATION RIGHTS
16.1 Piggyback Registration Rights. At any time following the Closing
Date, whenever HOLDING proposes to register any HOLDING Stock for its own or
others' account under the 1933 Act for a public offering, other than (i) any
shelf registration of shares to be used as consideration for acquisitions of
additional businesses by HOLDING, (ii) registrations relating to employee
benefit plans and (iii) registrations constituting secondary offerings of shares
issued in connection with any acquisitions of businesses or assets, HOLDING
shall give each of the STOCKHOLDERS written notice of its intent to do so at
least 15 days prior to the date of filing of a registration statement with the
Securities and Exchange Commission with respect to such registration. Upon the
written request of any of the STOCKHOLDERS or its Permitted Transferees given
within 15 days after receipt of such notice, HOLDING shall cause to be included
in such registration all of the HOLDING Stock issued to the STOCKHOLDERS
pursuant to this Agreement or transferred to such Permitted Transferees which
any such STOCKHOLDER or Permitted Transferee requests be included in such
registration, provided that HOLDING shall have the right to reduce the number of
shares to be included by the STOCKHOLDER in such registration to the extent that
inclusion of such shares could, in the written opinion of tax counsel to HOLDING
or its independent auditors, jeopardize the status of the transactions
contemplated hereby and by the Registration Statement as a tax-free
organization. In addition, if the proposed offering is a firm commitment
underwritten offering and HOLDING is advised in writing in good faith by any
managing underwriter of the securities being offered that the number of shares
to be included in such registration is greater than the number of such shares
which can be offered without adversely affecting the offering, HOLDING may
reduce pro rata the number of shares offered for the accounts of such persons
(based upon the number of shares held by each such person) to a number deemed
satisfactory by such
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managing underwriter, provided, that, for each such offering made by HOLDING
after the IPO, such reduction shall be made first by reducing the number of
shares to be sold by persons other than HOLDING, the STOCKHOLDERS and the
stockholders of the Other Founding Companies (collectively, the STOCKHOLDERS and
the stockholders of the other Founding Companies being referred to herein as the
"Founding Stockholders"), and thereafter, if a further reduction is required, by
reducing on a pro rata basis the number of shares to be sold by the Founding
Stockholders.
16.2 Demand Registration Rights. (a) At any time after the date that is
three years after the Closing Date, the holders of 30% of the shares of HOLDING
Stock issued to the Founding Stockholders pursuant to this Agreement and the
Other Agreements that have not been previously registered or sold and that are
not then entitled to be sold under Rule 144(k) (or any successor provision)
promulgated under the 1933 Act may request in writing that HOLDING file a
registration statement under the 1933 Act covering the registration of shares of
HOLDING Stock issued to such Founding Stockholders pursuant to this Agreement
and the Other Agreements (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
HOLDING Stock) then held by such Founding Stockholders (a "Demand
Registration"). Within ten (10) days of the receipt of such request, HOLDING
shall give written notice of such request to all other of such Founding
Stockholders and shall, as soon as reasonably practicable but in no event later
than 45 days after the date on which HOLDING gave such notice to such Founding
Stockholders, file and thereafter use its best efforts to cause to become
effective a registration statement covering all shares that such Founding
Stockholders have requested to be included in such registration, which requests
must be delivered to HOLDING no later than 30 days following HOLDING's delivery
of such notice to such Founding Stockholders. HOLDING shall be obligated to
effect only one Demand Registration for all Founding Stockholders and will keep
such Demand Registration current and effective for 120 days (or such shorter
period as is required to sell all of the shares registered thereon).
(b) Notwithstanding the foregoing paragraph, following such a demand, a
majority of HOLDING's disinterested directors (i.e., directors who have not
demanded or elected to sell shares in any such public offering) may defer the
filing of the registration statement for one 30-day period.
(c) If at the time of any request by the Founding Stockholders for a
Demand Registration, HOLDING has plans to file, within 60 days after such
request, a registration statement covering the sale of any of its securities in
a public offering under the 1933 Act, then no registration of the HOLDING Stock
held by the Founding Stockholders shall be initiated under this Section 16.2
until 90 days after the effective date of such registration unless HOLDING is no
longer proceeding diligently to effect such registration; provided that if such
registration is for HOLDING Stock, then HOLDING shall provide the Founding
Stockholders the right to participate in such public offering pursuant to, and
subject to, Section 16.1 hereof.
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(d) In addition, if the Founding Stockholders offering shares are advised
in writing in good faith by any managing underwriter of an underwritten offering
of the securities being offered pursuant to any registration statement under
this Section 16.2 that the number of shares to be sold by such Founding
Stockholders is greater than the number of such shares which can be offered
without adversely affecting the offering, then the shares to be registered for
each of the Founding Stockholders offering shares shall be reduced pro rata
(based upon the number of shares proposed to be sold by each such Founding
Stockholder) to a number deemed satisfactory by such managing underwriter.
16.3 Registration Procedures. All expenses incurred in connection with
the registrations under this Article 16 (including all registration, filing,
qualification, blue sky, legal, printer and accounting fees, but excluding
underwriting commissions and discounts), shall be borne by HOLDING. In
connection with registrations under Section 16.1 and 16.2, HOLDING shall (i) use
its best efforts to prepare and file with the SEC as soon as reasonably
practicable, a registration statement and all necessary amendments thereto with
respect to the HOLDING Stock and use its best efforts to cause such registration
to promptly become and remain effective until the earlier of (a) such time as
all of the shares covered by the registration statement have been disposed of
and (b) 120 days after the effective date of the registration statement;
provided, that if HOLDING or the managing underwriter for such offering requires
that a STOCKHOLDER refrain from selling shares at any time during the offering,
then such 120-day period shall be extended for the period of time equal to the
period for which the STOCKHOLDER was required to refrain from selling shares;
(ii) use its best efforts to register and qualify the HOLDING Stock covered by
such registration statement under applicable state securities laws as the
holders shall reasonably request for the distribution of the HOLDING Stock; and
(iii) take such other actions as are reasonable and necessary to comply with the
requirements of the 1933 Act and the regulations thereunder.
16.4 Underwriting Agreement. In connection with each registration pursuant
to Section 16.1 or 16.2 covering an underwritten registered public offering,
HOLDING and each participating holder agree to enter into a written agreement
with the managing underwriters in such form and containing such provisions as
are customary in the securities business for such an arrangement between such
managing underwriters and companies of HOLDING's size and investment stature,
including reasonable and customary indemnification provisions.
16.5 Availability of Rule 144. Notwithstanding any other provision of this
Section 16, HOLDING shall not be obligated to register shares of HOLDING Stock
held by any STOCKHOLDER at any time when the resale provisions of Rule 144(k)
(or any successor provision) promulgated under the 1933 Act are available to
such STOCKHOLDER for such shares.
16.6 Market Standoff. In consideration of the granting to the STOCKHOLDER
of the registration rights under this Section 16 and if requested by the
managing underwriter, each STOCKHOLDER agrees that, until the third anniversary
of the Closing, it will not sell, transfer
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or otherwise dispose of, including without limitation through put or short sale
arrangements, shares of HOLDING Stock during the period from the effective date
of the registration statement through the 90th day following the effective date
of such registration, provided, that: (i) all directors, executive officers and
holders of more than five percent of the outstanding HOLDING Stock agree to the
same restrictions; and (ii) with respect to the first public offering of shares
of HOLDING Stock within three years following the IPO, the STOCKHOLDER shall
have been afforded a meaningful opportunity to include shares in such
registration after giving effect to any reduction by reason of underwriters'
advice, unless sales by such STOCKHOLDER otherwise are restricted by Section 15.
17. REPRESENTATIONS AND COVENANTS RELATING TO TAX-FREE ORGANIZATION
The COMPANY, the STOCKHOLDERS, the Other Founding Companies and the
stockholders of the Other Founding Companies have requested that Morgan, Lewis &
Bockius LLP provide an opinion as to the qualification under section 351 of the
Code of the Merger, the mergers involving the Other Founding Companies and the
IPO (collectively referred to herein as the "Proposed Transaction"). The parties
to this Agreement hereby make the following representations and warranties and
acknowledge that such representations and warranties are for the benefit of and
will be relied upon by Morgan, Lewis & Bockius LLP for purposes of such opinion.
17.1 Representations and Warranties of the COMPANY and the STOCKHOLDERS.
Each of the COMPANY and each of the STOCKHOLDERS jointly and severally
represents and warrants to HOLDING and NEWCO that all of the following
representations and warranties in this Section are true at the date of this
Agreement and shall be true at the time of the Pre-Closing and the Closing Date
and that such representations and warranties shall survive the Closing Date
until such time as all statute of limitations periods have run for all tax
periods ended on or prior to or which include the Closing Date, which shall be
deemed to be the Expiration Date for purposes of this Section 17.1.
(a) No stock or securities of HOLDING will be issued to any STOCKHOLDER
for services rendered to or for the benefit of HOLDING in connection with the
Proposed Transaction.
(b) No stock or securities of HOLDING will be issued for any indebtedness
of HOLDING owed to any STOCKHOLDER in connection with the Proposed Transaction.
(c) Each STOCKHOLDER will receive HOLDING Stock or other property
approximately equal to the fair market value of the shares of the COMPANY Stock
such STOCKHOLDER surrenders pursuant to this Agreement.
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(d) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(e) The COMPANY and each STOCKHOLDER shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(f) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, no STOCKHOLDER shall take any
action that would jeopardize the qualification as a transaction under Section
351 of the Code of the Proposed Transaction.
(g) The fair market value of the assets of the COMPANY exceeds the sum of
the liabilities of the Company, plus the amount of liabilities, if any, to which
such assets are subject.
(h) The COMPANY is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 351(e)(2) of the Code.
(i) None of the COMPANY Stock is subject to any liabilities.
(j) None of the COMPANY Stock is section 306 stock within the meaning of
section 306(c) of the Code.
17.2 Representations and Warranties of the STOCKHOLDERS. Each STOCKHOLDER
severally represents and warrants to HOLDING and NEWCO that the representations
and warranties set forth below are true as of the date of this Agreement and
shall be true at the time of the Pre-Closing and the Closing Date, and that such
representations and warranties shall survive the Closing Date until such time as
all statute of limitations periods have run for all tax periods ended on or
prior to or which include the Closing Date, which shall be deemed to be the
Expiration Date for purposes of this Section 17.2.
(a) There is no indebtedness between such STOCKHOLDER and HOLDING, and
there will be no indebtedness created in favor of such STOCKHOLDER as a result
of the Proposed Transaction.
(b) Such STOCKHOLDER does not have any current plan or intention that may
be regarded as a part of the entire preconceived plan that includes the Merger,
or is under any prearranged binding commitment or contract, to sell, exchange,
distribute or otherwise dispose of, to pledge or otherwise encumber, or to enter
into a short sale, equity swap, option or other risk-reducing transaction with
respect to, shares of HOLDING Stock to be issued to such STOCKHOLDER pursuant to
this Agreement.
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17.3 Representations and Warranties of HOLDING and NEWCO. HOLDING and
NEWCO jointly and severally represent and warrant to the COMPANY and the
STOCKHOLDERS that all of the following representations and warranties in this
Section are true at the date of this Agreement and shall be true at the time of
the Pre-Closing and the Closing Date and that such representations and
warranties shall survive the Closing Date until such time as all statute of
limitations periods have run for all tax periods ended on or prior to or which
include the Closing Date, which shall be deemed to be the Expiration Date for
purposes of this Section 17.3.
(a) No stock or securities will be issued to the STOCKHOLDERS, the
stockholders of the Other Founding Companies (who, together with the
STOCKHOLDERS, are hereinafter referred to as the "HOLDERS") and the purchasers
of the HOLDING Stock in the IPO for services rendered to or for the benefit of
HOLDING in connection with the Proposed Transaction.
(b) No stock or securities will be issued for any indebtedness owed to any
HOLDER in connection with the Proposed Transaction.
(c) Each HOLDER will receive HOLDING Stock or other property approximately
equal to the fair market value of the shares of the stock in its respective
Founding Company that such HOLDER surrenders pursuant to this Agreement or the
Other Agreements, as the case may be.
(d) There is no indebtedness between the HOLDERS and HOLDING, and there
will be no indebtedness created in favor of any HOLDER as a result of the
Proposed Transaction.
(e) Except as otherwise provided in Section 18.6, each of the parties to
the Proposed Transaction will pay its or his/her own expenses, if any, incurred
in connection with the Proposed Transaction.
(f) Each of NEWCO and HOLDING shall comply with the tax reporting
requirements of section 1.351-3 of the Treasury regulations promulgated under
the Code, and shall treat the transaction as a transfer of property under
section 351(a) of the Code.
(g) Except as otherwise specifically contemplated by this Agreement or the
Registration Statement, after the Closing Date, HOLDING shall not and shall not
permit any of its subsidiaries to take any action that would jeopardize the
qualification as a transaction under Section 351 of the Code of the Proposed
Transaction.
(h) There is no plan or intention on the part of HOLDING to redeem or
otherwise reacquire any HOLDING Stock to be issued in the Proposed Transaction.
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(i) Taking into account any issuance of additional shares of HOLDING Stock
and any issuance of HOLDING Stock for services in connection with the Proposed
Transaction, the STOCKHOLDERS, together with the stockholders of the Other
Founding Companies and the purchasers of the HOLDING Stock in the IPO, will be
in "control" of HOLDING within the meaning of section 368(c) of the Code.
(j) HOLDING will not be an investment company within the meaning of
section 351(e)(1) of the Code and section 1.351-1(c)(1)(ii) of the Treasury
regulations.
(k) After the Closing Date, HOLDING will remain in existence and will not
be merged or liquidated into another company for at least two years.
(l) There is no plan or intention by HOLDING to liquidate, merge or
otherwise dispose of the COMPANY or to dispose of any material part of the
assets of the COMPANY within the two years following the Closing Date except in
the ordinary course of business or to eliminate duplicate services or excess
capacity.
(m) NEWCO is a Delaware corporation formed solely for the purpose of
completing the transactions set forth herein, has no operations or assets and is
wholly owned by HOLDING.
18. GENERAL
18.1 Cooperation. The COMPANY, the STOCKHOLDERS, HOLDING and NEWCO shall
each deliver or cause to be delivered to the other on the Closing Date, and at
such other times and places as shall be reasonably agreed to, such additional
instruments as the other may reasonably request for the purpose of carrying out
this Agreement. The COMPANY will cooperate and use its reasonable efforts to
have the present officers, directors and employees of the COMPANY cooperate with
HOLDING on and after the Closing Date in furnishing information, evidence,
testimony and other assistance in connection with any Tax Return filing
obligations, actions, proceedings, arrangements or disputes of any nature with
respect to matters pertaining to all periods prior to the Closing Date.
18.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law) and shall be binding
upon and shall inure to the benefit of the parties hereto, the successors of
HOLDING, and the heirs and legal representatives of the STOCKHOLDERS.
18.3 Entire Agreement. This Agreement (including the Schedules, exhibits
and annexes attached hereto), that certain Cost Sharing Agreement among HOLDING,
the COMPANY and each of the Other Founding Companies, and the documents
delivered pursuant hereto and thereto constitute the entire agreement and
understanding among the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING and
supersede any prior
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agreement and understanding relating to the subject matter of this Agreement.
This Agreement, upon execution, constitutes a valid and binding agreement of the
parties hereto enforceable in accordance with its terms and may be modified or
amended as provided in Section 18.14 only by a written instrument executed by
the STOCKHOLDERS, the COMPANY, NEWCO and HOLDING, acting through their
respective officers or trustees, duly authorized by their respective boards of
directors. Any disclosure made on any Schedule delivered pursuant hereto shall
be deemed to have been disclosed for purposes of any other Schedule required
hereby, provided that the COMPANY shall make a good faith effort to cross
reference disclosure, as necessary or advisable, between related Schedules.
18.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
18.5 Brokers and Agents. Except as disclosed on Schedule 18.5, each party
represents and warrants that it employed no broker or agent in connection with
this transaction and agrees to indemnify the other parties hereto against all
loss, cost, damages or expense arising out of claims for fees or commissions of
brokers employed or alleged to have been employed by such indemnifying party.
18.6 Expenses. Whether or not the transactions herein contemplated shall
be consummated but subject in all respects to that certain Cost Sharing
Agreement among HOLDING, the COMPANY and each of the Other Founding Companies,
HOLDING will pay the fees, expenses and disbursements of HOLDING and its agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments thereto, including all costs and
expenses incurred in the performance and compliance with all conditions to be
performed by HOLDING under this Agreement (including the reasonable fees and
expenses of Morgan, Lewis & Bockius LLP, and any other person or entity retained
by HOLDING) and except as otherwise provided below, the costs of preparing the
Registration Statement. Whether or not the transactions herein contemplated
shall be consummated, the COMPANY shall pay the reasonable fees, expenses and
disbursements of the COMPANY's accountants in preparing the financial statements
for inclusion in the Registration Statement, the fees, expenses and costs
specified in that certain Cost Sharing Agreement among HOLDING, the COMPANY and
each of the Other Founding Companies and up to $50,000 of the reasonable fees,
expenses and disbursements of counsel to the COMPANY incurred in connection with
this Agreement and the transactions contemplated hereby. Whether or not the
transactions herein contemplated shall be consummated, the STOCKHOLDERS shall
pay all other fees, expenses and disbursements of the STOCKHOLDERS, the COMPANY
and their respective agents, representatives, accountants and counsel incurred
in connection with the subject matter of this Agreement and any amendments
thereto, including all costs and expenses incurred in the performance and
compliance with all conditions to be performed by the COMPANY and the
STOCKHOLDERS under this Agreement, including the fees and expenses of
accountants and legal counsel to the COMPANY and the STOCKHOLDERS. In addition,
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each STOCKHOLDER shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") imposed in connection with the Merger, other than stock Transfer Taxes,
if any, imposed by the State of Delaware. Each STOCKHOLDER shall file all
necessary documentation and Returns with respect to such Transfer Taxes. In
addition, each STOCKHOLDER acknowledges that he, and not the COMPANY or HOLDING,
will pay all Taxes due upon receipt of the consideration payable pursuant
hereto, and will assume all Tax risks and liabilities of such STOCKHOLDER in
connection with the transactions contemplated hereby.
18.7 Notices. All notices of communication required or permitted hereunder
shall be in writing and may be given (1) by facsimile and by depositing a copy
thereof in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, or (2) by
delivering the same in person to an officer or agent of such party.
(a) If to HOLDING, or NEWCO, addressed to them at:
Enfinity Corporation
9440 Sidney Hays Road
Orlando, FL 32824
Facsimile No.: (407) 855-1166
Attn: Rodney C. Gilbert
with copies to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Facsimile No.: (212) 309-6273
Attn: Christopher T. Jensen, Esq.
(b) If to the STOCKHOLDERS, addressed to them at their addresses
set forth on Annex IV, with copies to such counsel as is set forth with respect
to each STOCKHOLDER on such Annex IV;
(c) If to the COMPANY, addressed to it at:
Air Systems, Inc.
381 Stockton Avenue
San Jose, CA 95126
Facsimile No.: (408) 280-1020
Attn: John W. Davis
and marked "Personal and Confidential"
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with copies to:
Morgan, Franich, Fredkin & Marsh
99 Almaden Boulevard
Suite 1000
San Jose, CA 95113
Facsimile No.: (408) 288-8325
Attn: Douglas J. Morgan
or to such other address or counsel as any party hereto shall specify pursuant
to this Section 18.7 from time to time.
18.8 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York, except that matters herein strictly within
the purview of the matters covered by the General Corporation Law of the State
of Delaware shall be governed by such General Corporation Law and matters herein
strictly within the purview of the matters covered by the corporate law of the
State of California shall be governed thereby, in each case without reference to
its conflicts of law provisions.
18.9 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
18.10 Time. Time is of the essence with respect to this Agreement.
18.11 Reformation and Severability. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as to most nearly retain the intent of the parties, and if such modification
is not possible, such provision shall be severed from this Agreement, and in
either case the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected or impaired
thereby.
18.12 Remedies Cumulative. No right, remedy or election given by any term
of this Agreement shall be deemed exclusive but each shall be cumulative with
all other rights, remedies and elections available at law or in equity.
18.13 Captions. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.
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18.14 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived only with the
written consent of HOLDING, NEWCO, the COMPANY and STOCKHOLDERS who will hold or
who hold at least 50% of the HOLDING Stock issued or to be issued upon
consummation of the Merger. Any amendment or waiver effected in accordance with
this Section 18.14 shall be binding upon each of the parties hereto, any other
person receiving HOLDING Stock in connection with the Merger and each future
holder of such HOLDING Stock.
18.15 Survival of Representations and Warranties. Unless otherwise
provided herein, the representations, warranties, covenants and agreements of
the parties made herein and at the time of the Pre-Closing and the Closing or in
writing delivered pursuant to the provisions of this Agreement shall survive the
consummation of the transactions contemplated hereby and any examination on
behalf of the parties until the Expiration Date.
18.16 STOCKHOLDER Representative
(a) As of the date hereof and at all times subsequent to the Closing, the
STOCKHOLDERS shall be deemed to have appointed John W. Davis (hereinafter
referred to as the "STOCKHOLDER Representative") as their representative for
purposes of all amendments, consents and waivers under this Agreement and for
purposes of taking actions on behalf of the STOCKHOLDERS pursuant to Section 11
and as attorney-in-fact and agent for and on behalf of the STOCKHOLDERS with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them with respect to such amendments, consents,
waivers and actions under Section 11 (including, without limitation, the
settling of claims pursuant to Section 11). The STOCKHOLDER Representative shall
have and is hereby granted by the STOCKHOLDERS full power and authority as agent
of STOCKHOLDERS to represent such STOCKHOLDERS, and their respective successors,
heirs, representatives, and assigns with respect to all matters arising under
this Agreement and any other matters concerning the transactions contemplated by
this Agreement, both before and after the Closing, and all action taken by the
STOCKHOLDER Representative hereunder shall be binding upon all of the
STOCKHOLDERS, and their respective successors, heirs, representatives and
assigns as if expressly confirmed and ratified in writing by each of them.
(b) The STOCKHOLDER Representative, in his capacity as such, shall not
incur any liability to any other STOCKHOLDER with respect to any action or
inaction taken by him except those involving his own willful misconduct or gross
negligence. The STOCKHOLDER Representative may, in all questions arising under
this Agreement, rely on the advice of counsel and for anything done, omitted or
suffered in good faith by the STOCKHOLDER Representative based on such advice,
the STOCKHOLDER Representative, in his capacity as such, shall not be liable to
any other STOCKHOLDER. Nothing set forth in this Section 18.16(b) shall in any
way relieve the STOCKHOLDERS, in their capacities as STOCKHOLDERS, of their
obligations under this Agreement.
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(c) In the event of the death or permanent disability of the STOCKHOLDER
Representative, or his resignation as STOCKHOLDER Representative, a successor
STOCKHOLDER Representative shall be appointed by the STOCKHOLDERS. Prompt notice
of such appointment shall be delivered in writing by the STOCKHOLDERS to
HOLDING.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ENFINITY CORPORATION
/s/ Rodney C. Gilbert
By: __________________________________
Name: Rodney C. Gilbert
Title: Chief Executive Officer
AIR SYSTEMS ACQUISITION CORP.
/s/ William M. Dillard
By: __________________________________
Name: William M. Dillard
Title: President
AIR SYSTEMS, INC.
/s/ John W. Davis
By: __________________________________
Name: John W. Davis
Title: President
STOCKHOLDERS:
/s/ John W. Davis
______________________________________
John W. Davis
/s/ Art Williams
______________________________________
Art Williams
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ANNEX III
CONSIDERATION TO BE PAID TO THE STOCKHOLDERS
Aggregate consideration to be paid to the STOCKHOLDERS:
Minimum cash*/** of $17,529,958 and 1,402,397 shares of Common Stock of
HOLDING, to be distributed as follows:
Consideration to be paid to each STOCKHOLDER:
<TABLE>
<CAPTION>
Shares of Common Stock
Stockholder of HOLDING*** Minimum Cash*/**
----------- ------------- ----------------
<S> <C> <C>
John Davis 1,332,277 $16,653,460
Arthur Williams 70,120 876,498
------ -------
1,402,397 $17,529,958
TOTALS:
</TABLE>
MINIMUM VALUE: $32,956,325 (determined by adding (a) the product found by
multiplying (i) the aggregate number of shares of HOLDING Stock to be paid to
the STOCKHOLDERS by (ii) $11.00 per share) plus (b) the aggregate amount of
minimum cash to be paid to the STOCKHOLDERS as specified in the table above.
* / Each STOCKHOLDER shall have the right to receive in cash his or her pro rata
portion of the amount found by multiplying (a) 1,402,397 [the number of shares
sold on behalf of the STOCKHOLDERS to provide the expected cash portion of the
Purchase Price] by (b) the positive difference, if any, found by subtracting (i)
$12.50 from (ii) the public offering price of the shares of HOLDING Stock in the
IPO. For purposes of this footnote, each STOCKHOLDERS pro rata portion shall
based on the minimum cash payable to such STOCKHOLDER relative to the minimum
cash payable to all STOCKHOLDERS as specified in the table above.
**/ In addition, the STOCKHOLDERS shall be entitled to receive from the COMPANY,
as a post-closing adjustment to the aggregate Purchase Price, an amount equal to
the "excess working capital" of the COMPANY, determined as of the Closing Date.
STOCKHOLDERS who believe they may be entitled to such an adjustment shall cause
the COMPANY to prepare a Closing Date Balance Sheet of the COMPANY in accordance
with GAAP, except that, for purposes of the ratios described below, billings in
excess of costs shall be reclassified from current liabilities and deducted from
accounts receivable. The "excess working capital" shall equal the amount
determined from the Closing Date Balance Sheet, which, after giving effect to
the payment to the STOCKHOLDERS of such amount, (1) does not cause the COMPANY
to have a current ratio of less than 1.33
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(the current ratio being defined as the ratio of current assets after withdrawal
of all cash included in such payment to current liabilities), (2) does not cause
the COMPANY to have a debt to equity ratio of greater than 2.25 and (3) does not
have debt in excess of the average total debt outstanding of the COMPANY during
the two-year period preceding the Balance Sheet Date. The payment of such amount
to the STOCKHOLDERS shall be made to the STOCKHOLDERS, pro rata, in accordance
with their respective percentage ownership interests in the COMPANY immediately
prior to the Merger. Prior to making any such payment to the STOCKHOLDERS, the
COMPANY shall have the amount of such payment approved by HOLDING and, to the
extent payment of such amount exceeds available cash as of the Closing Date (a
"Shortfall"), HOLDING shall cause the COMPANY to make such payment to the
STOCKHOLDERS in accordance with HOLDING'S instructions (which may require that
the COMPANY draw on its line of credit to the extent of the Shortfall or receive
funds from HOLDING to the extent of the Shortfall).
***/ In addition to the above, currently outstanding options to purchase 50,000
shares of COMPANY stock (4.08% of fully diluted equity) will be converted into
options to purchase 119,353 shares of HOLDING Stock at an exercise price of
$8.38 per share.
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EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE TRI-VALUE GROUP, INC.
The undersigned officer of THE TRI-VALUE GROUP, INC., a
corporation organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify on behalf of the Corporation as follows:
FIRST: The name of the Corporation is
THE TRI-VALUE GROUP, INC.
SECOND: The Certificate of Incorporation of the Corporation
was originally filed in the Office of the Secretary of State of the State of
Delaware on September 25, 1997 under the name of "The Tri-Value Group, Inc."
THIRD: This Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the provisions of Sections 242 and 245 of
the Delaware General Corporation Law, the Board of Directors having duly adopted
resolutions setting forth and declaring advisable this Amended and Restated
Certificate of Incorporation and, in lieu of a vote of stockholders, written
consent to this Amended and Restated Certificate of Incorporation having been
given by holders having not less than the minimum number of votes necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, with prompt notice of the taking of such action
having been given to those holders who have not consented in writing, all in
accordance with Section 228 of the Delaware General Corporation Law.
FOURTH: This Amended and Restated Certificate of Incorporation
is being filed pursuant to Sections 242 and 245 of the Delaware General
Corporation Law in order to amend and restate the Amended and Restated
Certificate of Incorporation of the Corporation.
FIFTH: The Amended and Restated Certificate of Incorporation
of the Corporation is hereby amended and restated in its entirety as follows:
ARTICLE ONE
The name of the Corporation is:
ENFINITY CORPORATION
ARTICLE TWO
The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801. The name of
its registered agent at such address is The Corporation Trust Company.
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ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE FOUR
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is forty nine million five hundred
thousand (49,500,000) shares, of which five hundred thousand (500,000) shares,
designated as Preferred Stock, shall have a par value of one cent ($.01) per
share (the "Preferred Stock"), and forty nine million (49,000,000) shares,
designated as Common Stock, shall have a par value of one cent ($.01) per share
(the"Common Stock").
A statement of the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, in respect of each class of
stock of the Corporation is as follows:
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the
Board of Directors as shares of one or more classes or series. Subject to the
provisions of this Amended and Restated Certificate of Incorporation and the
limitations prescribed by law, the Board of Directors is expressly authorized by
adopting resolutions to issue the shares, fix the number of shares and change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (and whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the Preferred Stock, without any further action or vote
by the stockholders.
COMMON STOCK
1. Dividends.
Subject to the preferred rights of the holders of shares of
any class or series of Preferred Stock as provided by the Board of Directors
with respect to any such class or series of Preferred Stock, the holders of the
Common Stock shall be entitled to receive, as and when declared by the Board of
Directors out of the funds of the Corporation legally available therefor, such
dividends (payable in cash, stock or otherwise) as the Board of Directors may
from time to time determine, payable to stockholders of record on such dates,
not exceeding 60 days preceding the dividend payment dates, as shall be fixed
for such purpose by the Board of Directors in advance of payment of each
particular dividend.
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2. Liquidation.
In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, after the distribution or
payment to the holders of shares of any class or series of Preferred Stock as
provided by the Board of Directors with respect to any such class or series of
Preferred Stock, the remaining assets of the Corporation available for
distribution to stockholders shall be distributed among and paid to the holders
of the Common Stock ratably in proportion to the number of shares of Common
Stock held by them respectively.
3. Voting Rights.
Except as otherwise required by law or as provided by the
Board of Directors with respect to any class or series of Preferred Stock, the
entire voting power and all voting rights shall be vested exclusively in the
Common Stock. Each holder of shares of Common Stock shall be entitled to one
vote for each share standing in such holder's name on the books of the
Corporation.
ARTICLE FIVE
1. Board of Directors.
Effective upon the closing of the Corporation's initial public
offering of Common Stock, the directors shall be classified with respect to the
time for which they shall severally hold office into three classes as nearly
equal in number as possible. The Class I directors shall be elected to hold
office for an initial term expiring at the 1999 annual meeting of stockholders,
the Class II directors shall be elected to hold office for an initial term
expiring at the 2000 annual meeting of stockholders and the Class III directors
shall be elected to hold office for an initial term expiring at the 2001 annual
meeting of stockholders, with the members of each class of directors to hold
office until their successors have been duly elected and qualified. At each
annual meeting of stockholders, the successors to the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election and until their successors have been duly elected and
qualified. At each annual meeting of stockholders at which a quorum is present,
the persons receiving a plurality of the votes cast shall be directors. No
director or class of directors may be removed from office by a vote of the
stockholders at any time except for cause. Election of directors need not be by
written ballot unless the By-Laws of the Corporation so provide.
2. Vacancies.
Any vacancy on the Board of Directors resulting from death,
retirement, resignation, disqualification or removal from office or other cause,
as well as any vacancy resulting from an increase in the number of directors
which occurs between annual meetings of the stockholders at which directors are
elected, shall be filled only by a majority vote of the remaining directors then
in office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
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stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the next
annual meeting of stockholders. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Notwithstanding the foregoing, whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE FOUR applicable thereto, and each
director so elected shall not be subject to the provisions of this ARTICLE FIVE
unless otherwise provided therein.
3. Amendment and Repeal of ARTICLE FIVE.
Notwithstanding any provision of this Amended and Restated
Certificate of Incorporation and of the By-Laws, and notwithstanding the fact
that a lesser percentage may be specified by Delaware law, unless such action
has been approved by a majority of the full Board of Directors, the affirmative
vote of the holders of 66-2/3 percent of the outstanding shares of capital stock
of the Corporation entitled to vote thereon, voting together as a single class,
shall be required to amend or repeal any provision of this ARTICLE FIVE or to
adopt any provision inconsistent with this ARTICLE FIVE. In the event such
action has been previously approved by a majority of the full Board of
Directors, the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote thereon shall be
sufficient to amend or repeal any provision of this ARTICLE FIVE or adopt any
provision inconsistent with this ARTICLE FIVE.
ARTICLE SIX
In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter and
repeal the By-Laws of the Corporation.
ARTICLE SEVEN
No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law, as the same may be amended
and supplemented, indemnify
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each director and officer of the Corporation from and against any and all of the
expenses, liabilities or other matters referred to in or covered by said section
and the indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any By-Law,
agreement, vote of stockholders, vote of disinterested directors or otherwise,
and shall continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such
persons, and the Corporation may purchase and maintain insurance on behalf of
any director or officer to the extent permitted by Section 145 of the Delaware
General Corporation Law.
ARTICLE NINE
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
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IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation on behalf of the Corporation and does
verify and affirm, under penalty of perjury, that this Amended and Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this 22nd day of January, 1998.
THE TRI-VALUE GROUP, INC.
By: /s/ William M. Dillard
------------------------------
Name: William M. Dillard
Title: President
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EXHIBIT 3.2
BY-LAWS
OF
ENFINITY CORPORATION
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation shall be held on such date, at such time and at such place
within or without the State of Delaware as may be designated by the Board of
Directors, for the purpose of electing Directors and for the transaction of such
other business as may be properly brought before the meeting.
SECTION 2. Special Meetings. Except as otherwise provided in the
Certificate of Incorporation, a special meeting of the stockholders of the
Corporation may be called at any time by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer or the President. Any special meeting of
the stockholders shall be held on such date, at such time and at such place
within or without the State of Delaware as the Board of Directors or the officer
calling the meeting may designate. At a special meeting of the stockholders, no
business shall be transacted and no corporate action shall be taken other than
that stated in the notice of the
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meeting unless all of the stockholders are present in person or by proxy,
in which case any and all business may be transacted at the meeting even
though the meeting is held without notice.
SECTION 3. Notice of Meetings. Except as otherwise provided in
these By-Laws or by law, a written notice of each meeting of the stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder of the Corporation entitled to vote at
such meeting at his or her address as it appears on the records of the
Corporation. The notice shall state the place, date and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
SECTION 4. Quorum. At any meeting of the stockholders, the holders
of a majority in number of the total outstanding shares of stock of the
Corporation entitled to vote at such meeting, present in person or represented
by proxy, shall constitute a quorum of the stockholders for all purposes, unless
the representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation or by these By-Laws, in which case the
representation of the number of shares so required shall constitute a quorum;
provided that at any meeting of the stockholders at which the holders of any
class of stock of the Corporation shall be entitled to vote separately as a
class, the holders of a majority in number of the total outstanding shares of
such class, present in person or represented by proxy, shall constitute a quorum
for purposes of such class vote unless the representation of a larger number of
shares of such class shall be required by law, by the Certificate of
Incorporation or by these By-Laws.
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SECTION 5. Adjourned Meetings. Whether or not a quorum shall be
present in person or represented at any meeting of the stockholders, the holders
of a majority in number of the shares of stock of the Corporation present in
person or represented by proxy and entitled to vote at such meeting may adjourn
from time to time; provided, however, that if the holders of any class of stock
of the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holder of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
SECTION 6. Organization. The Chairman of the Board, or, in his
absence, the Chief Executive Officer, or, in their absence, the President, or,
in the absence of the Chairman of the Board, the Chief Executive Officer and the
President, a Vice President shall call all meetings of the stockholders to
order, and shall act as Chairman of such meetings. In the absence of the
Chairman of the Board, the Chief Executive Officer, the President and all of the
Vice Presidents,
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the holders of a majority in number of the shares of stock of the Corporation
present in person or represented by proxy and entitled to vote at such meeting
shall elect a Chairman.
The Secretary of the Corporation shall act as Secretary of all
meetings of the stockholders; but in the absence of the Secretary, the Chairman
may appoint any person to act as Secretary of the meeting. It shall be the duty
of the Secretary to prepare and make, at least ten days before every meeting of
stockholders, a complete list of stockholders entitled to vote at such meeting,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder. Such list shall
be open, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held, for the ten days next
preceding the meeting, to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, and shall be produced
and kept at the time and place of the meeting during the whole time thereof and
subject to the inspection of any stockholder who may be present.
SECTION 7. Voting. Except as otherwise provided in the Certificate
of Incorporation or by law, each stockholder shall be entitled to one vote for
each share of the capital stock of the Corporation registered in the name of
such stockholder upon the books of the Corporation. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him or her by proxy, but no such proxy shall be voted or acted upon
after three years from its
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date, unless the proxy provides for a longer period. When directed by the
presiding officer or upon the demand of any stockholder, the vote upon any
matter before a meeting of stockholders shall be by ballot. Except as otherwise
provided by law or by the Certificate of Incorporation, Directors shall be
elected by a plurality of the votes cast at a meeting of stockholders by the
stockholders entitled to vote in the election and, whenever any corporate
action, other than the election of Directors is to be taken, it shall be
authorized by a majority of the votes cast at a meeting of stockholders by the
stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
SECTION 8. Inspectors. When required by law or directed by the
presiding officer or upon the demand of any stockholder entitled to vote, but
not otherwise, the polls shall be opened and closed, the proxies and ballots
shall be received and taken in charge, and all questions touching the
qualification of voters, the validity of proxies and the acceptance or rejection
of votes shall be decided at any meeting of the stockholders by one or more
Inspectors who may be appointed by the Board of Directors before the meeting, or
if not so appointed, shall be appointed by the presiding officer at the meeting.
If any person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
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SECTION 9. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required to
be taken or which may be taken at any annual or special meeting of the
stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of any such corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE II
Board of Directors
SECTION 1. Number, Classification and Tenure. The powers of the
Corporation shall be exercised by or under the authority of, and the business
and affairs of the Corporation shall be managed under the direction of, the
Board of Directors. The Board of Directors shall be divided into three classes
as provided in the Certificate of Incorporation. Each Director shall hold office
for the full term for which such Director is elected and until such Director's
successor shall have been duly elected and qualified or until his earlier death
or resignation or removal in accordance with the Certificate of Incorporation or
these By-Laws.
Within the limits specified in the Certificate of Incorporation,
the number of Directors that shall constitute the whole Board of Directors shall
be fixed by, and may be increased or
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decreased from time to time by, the Board of Directors. Except as provided in
the Certificate of Incorporation of the Corporation, newly created directorships
resulting from any increase in the number of Directors and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the affirmative vote of a majority of the
remaining Directors then in office, even though less than a quorum of the Board
of Directors. Any Director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of Directors
in which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified or until his earlier
death, resignation or removal. No decrease in the number of Directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 2. Qualifications. Directors need not be residents of the
State of Delaware or stockholders of the Corporation.
SECTION 3. Nomination of Directors. Subject to such rights of the
holders of one or more outstanding series of Preferred Stock of the Corporation
to elect one or more Directors in case of arrearages in the payment of dividends
or other defaults or in other cases as shall be prescribed in the Certificate of
Incorporation or in the resolutions of the Board of Directors providing for the
establishment of any such series, only persons who are nominated in accordance
with the procedures set forth in this Section 3 shall be eligible for election
as, and to serve as, Directors. Nominations of persons for election to the Board
of Directors may be made at a meeting of the stockholders at which Directors are
to be elected (i) by or at the direction of
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the Board of Directors or (ii) by any stockholder of the Corporation who is a
stockholder of record at the time of the giving of such stockholder's notice
provided for in this Section 3, who shall be entitled to vote at such meeting in
the election of Directors and who complies with the requirements of this Section
3. Such nominations, other than those made by or at the direction of the Board
of Directors, shall be preceded by timely advance notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to, or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual meeting of
the stockholders of the Corporation, not later than the close of business on the
90th day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that with respect to the annual meeting of stockholders to be
held in 1998 or in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not later than the close of
business on the later of the 90th day prior to such annual meeting or the 10th
day following the day on which public announcement of the date of such meeting
is first made by the Corporation; and (ii) with respect to an election to be
held at a special meeting of stockholders of the Corporation for the election of
Directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed to
stockholders of the Corporation as provided in Article 1, Section 3 hereof or
public disclosure of the date of the special meeting was made, whichever first
occurs. Any such stockholder's notice to the Secretary of the Corporation shall
set forth (x) as to each person whom the stockholder proposes to nominate for
election or re-election as a Director, (i) the name, age, business address and
residence address of such person, (ii) the principal occupation or
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employment of such person, (iii) the number of shares of each class of capital
stock of the Corporation beneficially owned by such person, (iv) the written
consent of such person to having such persons's name placed in nomination at the
meeting and to serve as a Director if elected and (v) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required, pursuant to
Regulation 14A under the Exchange Act, and (y) as to the stockholder giving the
notice, (i) the name and address, as they appear on the Corporation's books, of
such stockholder and (ii) the number of shares of each class of voting stock of
the Corporation which are then beneficially owned by such stockholder. The
presiding officer of the meeting of stockholders shall determine whether the
requirements of this Section 3 have been met with respect to any nomination or
intended nomination. If the presiding officer determines that any nomination was
not made in accordance with the requirements of this Section 3, he shall so
declare at the meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 3, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this Section
3.
SECTION 4. Removal, Vacancies and Additional Directors. Except as
otherwise provided in the Certificate of Incorporation, the stockholders may, at
any special meeting the notice of which shall state that it is called for that
purpose, remove, with or without cause, any Director and fill the vacancy;
provided that whenever any Director shall have been elected by the holders of
any class of stock of the Corporation voting separately as a class under the
provisions of the Certificate of Incorporation, such Director may be removed and
the vacancy filled only by
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the holders of that class of stock voting separately as a class. Except as
otherwise provided in the Certificate of Incorporation, vacancies caused by any
such removal and not filled by the stockholders at the meeting at which such
removal shall have been made, or any vacancy caused by the death or resignation
of any Director or for any other reason, and any newly created directorship
resulting from any increase in the authorized number of Directors, may be filled
by the affirmative vote of a majority of the Directors then in office, although
less than a quorum, and any Director so elected to fill any such vacancy or
newly created directorship shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal.
When one or more Directors shall resign effective at a future date,
a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each Director so chosen shall hold office as herein provided in connection with
the filling of other vacancies.
SECTION 5. Place of Meeting. The Board of Directors may hold its
meetings in such place or places in the State of Delaware or outside the State
of Delaware as the Board from time to time shall determine.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board from time to time
by resolution shall determine. No
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notice shall be required for any regular meeting of the Board of Directors; but
a copy of every resolution fixing or changing the time or place of regular
meetings shall be mailed to every Director at least five days before the first
meeting held in pursuance thereof.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by direction of the Chairman of the
Board, the President or by any two of the Directors then in office.
Notice of the day, hour and place of holding of each special
meeting shall be given by mailing the same at least two days before the meeting
or by causing the same to be transmitted by facsimile, telegram or telephone at
least one day before the meeting to each Director. Unless otherwise indicated in
the notice thereof, any and all business other than an amendment of these
By-Laws may be transacted at any special meeting, and an amendment of these
By-Laws may be acted upon if the notice of the meeting shall have stated that
the amendment of these By-Laws is one of the purposes of the meeting. At any
meeting at which every Director shall be present, even though without any
notice, any business may be transacted, including the amendment of these
By-Laws.
SECTION 8. Quorum. Subject to the provisions of Section 4 of this
Article II, a majority of the members of the Board of Directors in office (but,
unless the Board shall consist solely of one Director, in no case less than
one-third of the total number of Directors nor less than two Directors) shall
constitute a quorum for the transaction of business and the vote of the
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majority of the Directors present at any meeting of the Board of Directors at
which a quorum is present shall be the act of the Board of Directors. If at any
meeting of the Board there is less than a quorum present, a majority of those
present may adjourn the meeting from time to time.
SECTION 9. Organization. The Chairman of the Board, or, in his
absence, the President shall preside at all meetings of the Board of Directors.
In the absence of both the Chairman of the Board and the President, a Chairman
shall be elected from the Directors present. The Secretary of the Corporation
shall act as Secretary of all meetings of the Directors; but in the absence of
the Secretary, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 10. Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided by resolution passed by a majority of the
whole Board, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and the affairs of the
Corporation, and may authorize the seal
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of the Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these By-Laws; and unless such resolution, these By-laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 11. Conference Telephone Meetings. Unless otherwise
restricted by the Certificate of Incorporation or by these By-Laws, the members
of the Board of Directors or any committee designated by the Board, may
participate in a meeting of the Board or such committee, as the case may be, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and such
participation shall constitute presence in person at such meeting.
SECTION 12. Consent of Directors or Committee in Lieu of Meeting.
Unless otherwise restricted by the Certificate of Incorporation or by these
By-Laws, any action required or permitted to be taken at any meeting of the
Board Directors, or of any committee thereof, may be taken without a meeting if
all members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
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ARTICLE III
Officers
SECTION 1. Officers. The officers of the Corporation shall be a
Chairman of the Board, a Chief Executive Officer, a President, one or more Vice
Presidents, a Secretary and a Treasurer, and such additional officers, if any,
as shall be elected by the Board of Directors pursuant to the provisions of
Section 7 of this Article III. The Chairman of the Board, the President, the
Chief Executive Officer, one or more Vice Presidents, the Secretary and the
Treasurer shall be elected by the Board of Directors at its first meeting after
each annual meeting of the stockholders. The failure to hold such election shall
not of itself terminate the term of office of any officer. All officers shall
hold office at the pleasure of the Board of Directors. Any officer may resign at
any time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal,
with or without cause, at any time by the Board of Directors. The removal of an
officer without cause shall be without prejudice to his or her contract rights,
if any. The election or appointment of an officer shall not of itself create
contract rights. All agents and employees other than officers elected by the
Board of Directors shall also be subject to removal, with or without cause, at
any time by the officers appointing them.
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Any vacancy caused by the death, resignation or removal of any
officer, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the
Corporation as set forth in these By-Laws, the officers shall have such
authority and shall perform such duties as from time to time may be determined
by the Board of Directors.
SECTION 2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall preside at all meetings of the stockholders and at
all meetings of the Board of Directors and shall have such other powers and
perform such other duties as may from time to time be assigned by these By-Laws
or by the Board of Directors.
SECTION 3. Powers and Duties of the Chief Executive Officer. The
Chief Executive Officer shall be the chief executive officer of the Corporation,
have general charge and control of all the Corporation's business and affairs
and, subject to the control of the Board of Directors, shall have all powers and
shall perform all duties incident to the office of Chief Executive Officer. In
the absence of the Chairman of the Board, the Chief Executive Officer shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In addition, the Chief Executive Officer shall have such other powers
and perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors.
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SECTION 4. Powers and Duties of the President. The President shall,
subject to the control of the Board of Directors, have all powers and shall
perform all duties incident to the office of President. In the absence of the
Chairman of the Board and the Chief Executive Officer, the President shall
preside at all meetings of the stockholders and at all meetings of the Board of
Directors. In the absence of the Chief Executive Officer, the President shall be
the chief executive officer of the Corporation, have general charge and control
of all the Corporation's business and affairs and shall have such other powers
and perform such other duties as may from time to time be assigned by these
By-Laws or by the Board of Directors.
SECTION 5. Powers and Duties of the Vice Presidents. Each Vice
President shall have all powers and shall perform all duties incident to the
office of Vice President and shall have such other powers and perform such other
duties as may from time to time be assigned by these By-Laws or by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President.
SECTION 6. Powers and Duties of the Secretary. The Secretary shall
keep the minutes of all meetings of the Board of Directors and the minutes of
all meetings of the stockholders in books provided for that purpose. The
Secretary shall attend to the giving or serving of all notices of the
Corporation; shall have custody of the corporate seal of the Corporation and
shall affix the same to such documents and other papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall
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authorize and direct; shall have charge of the stock certificate books, transfer
books and stock ledgers and such other books and papers as the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President shall direct, all of which shall at all reasonable times be open to
the examination of any Director, upon application, at the office of the
Corporation during business hours. The Secretary shall have all powers and shall
perform all duties incident to the office of Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned by these By-Laws or by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President.
SECTION 7. Powers and Duties of the Treasurer. The Treasurer shall
have custody of, and when proper shall pay out, disburse or otherwise dispose
of, all funds and securities of the Corporation. The Treasurer may endorse on
behalf of the Corporation for collection checks, notes and other obligations and
shall deposit the same to the credit of the Corporation in such bank or banks or
depositary or depositaries as the Board of Directors may designate; shall sign
all receipts and vouchers for payments made to the Corporation; shall enter or
cause to be entered regularly in the books of the Corporation kept for the
purpose full and accurate accounts of all moneys received or paid or otherwise
disposed of and whenever required by the Board of Directors, the Chairman of the
Board, the Chief Executive Officer or the President shall render statements of
such accounts. The Treasurer shall, at all reasonable times, exhibit the books
and accounts to any Director of the Corporation upon application at the office
of the Corporation during business hours; and shall have all powers and shall
perform all duties incident of the office of Treasurer and shall also have such
other powers and shall perform such other duties as
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may from time to time be assigned by these By-Laws or by the Board of Directors,
the Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Additional Officers. The Board of Directors may from
time to time elect such other officers (who may but need not be Directors),
including a Controller, Assistant Treasurers, Assistant Secretaries and
Assistant Controllers, as the Board may deem advisable and such officers shall
have such authority and shall perform such duties as may from time to time be
assigned by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President.
The Board of Directors may from time to time by resolution delegate
to any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
SECTION 9. Giving of Bond by Officers. All officers of the
Corporation, if required to do so by the Board of Directors, shall furnish bonds
to the Corporation for the faithful performance of their duties, in such
penalties and with such conditions and security as the Board shall require.
SECTION 10. Voting Upon Stocks. Unless otherwise ordered by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice
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President shall have full power and authority on behalf of the Corporation to
attend and to act and to vote, or in the name of the Corporation to execute
proxies to vote, at any meeting of stockholders of any corporation in which the
Corporation may hold stock, and at any such meeting shall possess and may
exercise, in person or by proxy, any and all rights, powers and privileges
incident to the ownership of such stock. The Board of Directors may from time to
time, by resolution, confer like powers upon any other person or persons.
SECTION 11. Compensation of Officers. The officers of the
Corporation shall be entitled to receive such compensation for their services as
shall from time to time be determined by the Board of Directors.
ARTICLE IV
Indemnification of Directors and Officers
Section 1. Nature of Indemnity. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was or has agreed to become a Director or officer of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by
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reason of the fact that he or she is or was or has agreed to become an employee
or agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person or on his or her behalf in
connection with such action, suit or proceeding and any appeal therefrom, if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful; except that in the case of an action or suit by or in the
right of the Corporation to procure a judgment in its favor (1) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably
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believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
Section 2. Successful Defense. To the extent that a Director,
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
1 of this Article IV or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
Section 3. Determination that Indemnification is Proper. Any
indemnification of a Director or officer of the Corporation under Section 1 of
this Article IV (unless ordered by a court) shall be made by the Corporation
unless a determination is made that indemnification of the Director or officer
is not proper in the circumstances because he or she has not met the applicable
standard of conduct set forth in Section 1. Any indemnification of an employee
or agent of the Corporation under Section 1 (unless ordered by a court) may be
made by the Corporation upon a determination that indemnification of the
employee or agent is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in Section 1. Any such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of Directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
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Section 4. Advance Payment of Expenses. Unless the Board of
Directors otherwise determines in a specific case, expenses incurred by a
Director or officer in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
Director or officer to repay such amount if it shall ultimately be determined
that he or she is not entitled to be indemnified by the Corporation as
authorized in this Article IV. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate. The Board of Directors may authorize the
Corporation's legal counsel to represent such Director, officer, employee or
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
Section 5. Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
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The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which a person indemnified may be entitled
under any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
Section 6. Severability. If this Article IV or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
Section 7. Subrogation. In the event of payment of indemnification
to a person described in Section 1 of this Article IV, the Corporation shall be
subrogated to the extent of such payment to any right of recovery such person
may have and such person, as a condition of
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receiving indemnification from the Corporation, shall execute all documents and
do all things that the Corporation may deem necessary or desirable to perfect
such right of recovery, including the execution of such documents necessary to
enable the Corporation effectively to enforce any such recovery.
Section 8. No Duplication of Payments. The Corporation shall not be
liable under this Article IV to make any payment in connection with any claim
made against a person described in Section 1 of this Article IV to the extent
such person has otherwise received payment (under any insurance policy, by-law
or otherwise) of the amounts otherwise payable as indemnity hereunder.
ARTICLE V
Stock-Seal-Fiscal Year
SECTION 1. Certificates For Shares of Stock. The certificates for
shares of stock of the Corporation shall be in such form, not inconsistent with
the Certificate of Incorporation, as shall be approved by the Board of
Directors. All certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall
not be valid unless so signed.
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In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation, such
certificate or certificates may nevertheless be issued and delivered as though
the person or persons who signed such certificate or certificates had not ceased
to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively
numbered as the same are issued. The name of the person owning the shares
represented thereby with the number of such shares and the date of issue thereof
shall be entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
SECTION 2. Lost, Stolen or Destroyed Certificates. Whenever a
person owning a certificate for shares of stock of the Corporation alleges that
it has been lost, stolen or destroyed, he or she shall file in the office of the
Corporation an affidavit setting forth, to the best of his or her knowledge and
belief, the time, place and circumstances of the loss, theft or destruction,
and, if required by the Board of Directors, a bond of indemnity or other
indemnification sufficient in the opinion of the Board of Directors to indemnify
the Corporation and its agents against any claim that may be made against it or
them on account of the alleged loss, theft or destruction of
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any such certificate or the issuance of a new certificate in replacement
therefor. Thereupon the Corporation may cause to be issued to such person a new
certificate in replacement for the certificate alleged to have been lost, stolen
or destroyed. Upon the stub of every new certificate so issued shall be noted
the fact of such issue and the number, date and the name of the registered owner
of the lost, stolen or destroyed certificate in lieu of which the new
certificate is issued.
SECTION 3. Transfer of Shares. Shares of stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof, in
person or by his or her attorney duly authorized in writing, upon surrender and
cancellation of certificates for the number of shares of stock to be
transferred, except as provided in Section 2 of this Article IV.
SECTION 4. Regulations. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for shares of stock of the
Corporation.
SECTION 5. Record Date. In order that the Corporation may determine
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or to express consent to corporate action in writing
without a meeting or to receive payment of any dividend or other distribution or
allotment of any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
as the case may be, the Board of Directors may fix, in advance, a record date,
which shall not be (i) more than sixty (60) nor less than ten (10) days before
the date of such meeting, or (ii)
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in the case of corporate action to be taken by consent in writing without a
meeting, prior to, or more than ten (10) days after, the date upon which the
resolution fixing the record date is adopted by the Board of Directors, or (iii)
more than sixty (60) days prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is delivered to the Corporation; and
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. Dividends. Subject to the provisions of the Certificate
of Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of
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Directors shall determine. If the date fixed for the payment of any dividend
shall in any year fall upon a legal holiday, then the dividend payable on such
date shall be paid on the next day not a legal holiday.
SECTION 7. Corporate Seal. The Board of Directors shall provide a
suitable seal, containing the name of the Corporation, which seal shall be kept
in the custody of the Secretary. A duplicate of the seal may be kept and be used
by any officer of the Corporation designated by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President.
SECTION 8. Fiscal Year. The fiscal year of the Corporation shall be
such fiscal year as the Board of Directors from time to time by resolution shall
determine.
ARTICLE VI
Miscellaneous Provisions.
SECTION 1. Checks, Notes, Etc. All checks, drafts, bills of
exchange, acceptances, notes or other obligations or orders for the payment of
money shall be signed and, if so required by the Board of Directors,
countersigned by such officers of the Corporation and/or other persons as the
Board of Directors from time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations
and orders for the payment of money made payable to the Corporation may be
endorsed for deposit to the credit of
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the Corporation with a duly authorized depository by the Treasurer and/or such
other officers or persons as the Board of Directors from time to time may
designate.
SECTION 2. Loans. No loans and no renewals of any loans shall be
contracted on behalf of the Corporation except as authorized by the Board of
Directors. When authorized to do so, any officer or agent of the Corporation may
effect loans and advances for the Corporation from any bank, trust company or
other institution or from any firm, corporation or individual, and for such
loans and advances may make, execute and deliver promissory notes, bonds or
other evidences of indebtedness of the Corporation. When authorized so to do,
any officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
SECTION 3. Contracts. Except as otherwise provided in these By-Laws
or by law or as otherwise directed by the Board of Directors, the Chairman of
the Board, the Chief Executive Officer, the President or any Vice President
shall be authorized to execute and deliver, in the name and on behalf of the
Corporation, all agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and the seal of the Corporation, if appropriate, shall be affixed
thereto by any of such officers or the Secretary or an Assistant Secretary. The
Board of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or any Vice President designated by the Board of
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Directors may authorize any other officer, employee or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board or
any such officer may be general or confined to specific instances.
SECTION 4. Waivers of Notice. Whenever any notice whatever is
required to be given by law, by the Certificate of Incorporation or by these
By-Laws to any person or persons, a waiver thereof in writing, signed by the
person or persons entitled to the notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
SECTION 5. Offices Outside of Delaware. Except as otherwise
required by the laws of the State of Delaware, the Corporation may have an
office or offices and keep its books, documents and papers outside of the State
of Delaware at such place or places as from time to time may be determined by
the Board of Directors, the Chairman of the Board, the Chief Executive Officer
or the President.
ARTICLE VII
Amendments
These By-Laws and any amendment thereof may be altered, amended or
repealed, or new By-Laws may be adopted, by the Board of Directors at any
regular or special meeting by the
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affirmative vote of a majority of all of the members of the Board, provided in
the case of any special meeting at which all of the members of the Board are not
present, that the notice of such meeting shall have stated that the amendment of
these By-Laws was one of the purposes of the meeting; but these By-Laws and any
amendment thereof may be altered, amended or repealed or new By-Laws may be
adopted by the holders of a majority of the total outstanding stock of the
Corporation entitled to vote at any annual meeting or at any special meeting,
provided, in the case of any special meeting, that notice of such proposed
alteration, amendment, repeal or adoption is included in the notice of the
meeting.
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ENFINITY CORPORATION
1998 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 1998 Long-Term Incentive Plan (the
"Plan") of Enfinity Corporation, a Delaware corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract, retain, motivate and reward directors, officers, employees and
consultants of and service providers to the Company and its subsidiaries and to
enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards are set forth in Section 6 of the Plan. Such awards, together
with any other right or interest granted to a Participant under the Plan, are
termed "Awards." For purposes of the Plan, the following additional terms shall
be defined as set forth below:
(1) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(2) "Beneficiary" shall mean the person, persons, trust or trusts which
have been designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or, if there is no
designated Beneficiary or surviving designated Beneficiary, then the person,
persons, trust or trusts entitled by will or the laws of descent and
distribution to receive such benefits.
(3) "Board" means the Board of Directors of the Company.
(4) A "Change in Control" shall be deemed to have occurred if:
(1) the date of the acquisition by any "person" (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), excluding
the Company or any of its subsidiaries or affiliates or any employee
benefit plan sponsored by any of the foregoing, of beneficial ownership
(within the meaning of Rule 13d-3 under the Exchange Act) of 30% or more
of either (x) the then outstanding shares of common stock of the Company
or (y) the then outstanding voting securities entitled to vote generally
in the election of directors; or
(2) the date the individuals who constitute the Board as of the
date of the Initial Public Offering (the "Incumbent Board") cease for
any reason to constitute at least a majority of the members of the
Board, provided that any individual becoming a director subsequent
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to the effective date of this Agreement whose election, or nomination
for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board (other than any individual whose nomination for election to
Board membership was not endorsed by the Company's management prior
to, or at the time of, such individual's initial nomination for
election) shall be, for purposes of this Agreement, considered as
though such person were a member of the Incumbent Board; or
(3) the consummation of a merger, consolidation,
recapitalization, reorganization, sale or disposition of all or a
substantial portion of the Company's assets, a reverse stock split of
outstanding voting securities, the issuance of shares of stock of the
Company in connection with the acquisition of the stock or assets of
another entity, provided, however, that a Change in Control shall not
occur under this clause (iii) if consummation of the transaction would
result in at least 70% of the total voting power represented by the
voting securities of the Company (or, if not the Company, the entity
that succeeds to all or substantially all of the Company's business)
outstanding immediately after such transaction being beneficially owned
(within the meaning of Rule 13d-3 promulgated pursuant to the Exchange
Act) by at least 75% of the holders of outstanding voting securities of
the Company immediately prior to the transaction, with the voting power
of each such continuing holder relative to other such continuing holders
not substantially altered in the transaction.
(5) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
regulations thereunder and successor provisions and regulations thereto.
(6) "Committee" means the committee appointed by the Board to administer
the Plan, or if no committee is appointed, the Board.
(7) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include rules thereunder and successor provisions and rules thereto.
(8) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or proce dures as shall be established from time to
time by the Committee, provided, however, that (i) if the Stock is listed on a
national securities exchange or quoted in an interdealer quotation system, the
Fair Market Value of such Stock on a given date shall be based upon the last
sales price or, if unavailable, the average of the closing bid and asked prices
per share of the Stock on such date (or, if there was no trading or quotation in
the Stock on such date, on the next preceding date on which there was trading or
quotation) as provided by one of such organizations, (ii) the "fair market
value" of Stock on the date on which shares of Stock are first issued and sold
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission shall be the Initial Public Offering price of
the shares so issued and sold, as set forth in the first final prospectus used
in such offering and (iii) the "fair market value" of Stock prior to the date of
the Initial Public Offering shall be as determined by the Board.
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(9) "Initial Public Offering" shall mean an initial public offering of
shares of Stock in a firm commitment underwriting registered with the Securities
and Exchange Commission in compliance with the provisions of the 1933 Act.
(10) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(11) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
(12) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(13) "Stock" means the Common Stock, par value $.01, of the Company and
such other securities as may be substituted for Stock or such other securities
pursuant to Section 4.
3. Administration.
(1) Authority of the Committee. Except as otherwise provided below, the
Plan shall be administered by the Committee. The Committee shall have full and
final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
(1) to select persons to whom Awards may be granted;
(2) to determine the type or types of Awards to be granted to
each such person;
(3) to determine the number of Awards to be granted, the
number of shares of Stock to which an Award will relate, the terms and
conditions of any Award granted under the Plan (including, but not
limited to, any exercise price, grant price or purchase price, any
restriction or condition, any schedule for lapse of restrictions or
conditions relating to transferability or forfeiture, exercisability or
settlement of an Award, and waivers or accelerations thereof,
performance conditions relating to an Award (including performance
conditions relating to Awards not intended to be governed by Section
7(f) and waivers and modifications thereof), based in each case on such
considerations as the Committee shall determine), and all other matters
to be determined in connection with an Award;
(4) to determine whether, to what extent and under what
circumstances an Award may be settled, or the exercise price of an Award
may be paid, in cash, Stock, other Awards, or other property, or an
Award may be canceled, forfeited, or surrendered;
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(5) to determine whether, to what extent and under what
circumstances cash, Stock, other Awards or other property payable with
respect to an Award will be deferred either automatically, at the
election of the Committee or at the election of the Participant;
(6) to determine the restrictions, if any, to which Stock
received upon exercise or settlement of an Award shall be subject
(including lock-ups and other transfer restrictions), may condition the
delivery of such Stock upon the execution by the Participant of any
agreement providing for such restrictions;
(7) to prescribe the form of each Award Agreement, which need
not be identical for each Participant;
(8) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary
or advisable to administer the Plan;
(9) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder; and
(10) to make all other decisions and determinations as may be
required under the terms of the Plan or as the Committee may deem
necessary or advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board shall perform the
functions of the Committee for purposes of granting awards to directors who
serve on the Committee (subject to Section 8), and the may perform any function
of the Committee under the Plan for any other purpose, including without
limitation for the purpose of ensuring that transactions under the Plan by
Participants who are then subject to Section 16 of the Exchange Act in respect
of the Company are exempt under Rule 16b-3. In any case in which the Board is
performing a function of the Committee under the Plan, each reference to the
Committee herein shall be deemed to refer to the Board, except where the context
otherwise requires.
(2) Manner of Exercise of Committee Authority. Any action of the
Committee with respect to the Plan shall be final, conclusive and binding on all
persons, including the Company, subsidiaries of the Company, Participants, any
person claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
be modified by the Committee (subject to Section 9(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee.
Except as provided under Section 7(f), the Committee may delegate to officers or
managers of the Company or any subsidiary of the Company the authority, subject
to such terms as the Committee
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shall determine, to perform such functions as the Committee may determine, to
the extent permitted under applicable law.
(3) Limitation of Liability. Each member of the Committee shall be
entitled to, in good faith, rely or act upon any report or other information
furnished to him by any officer or other employee of the Company or any
subsidiary, the Company's independent certified public accountants or any
executive compensation consultant, legal counsel or other professional retained
by the Company to assist in the administration of the Plan. No member of the
Committee, or any officer or employee of the Company acting on behalf of the
Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Company acting on
its behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action, determination or
interpretation.
4. Stock Subject to Plan.
(1) Amount of Stock Reserved. The total amount of Stock that may be
subject to outstanding awards, determined immediately after the grant of any
Award, shall not exceed 13.5% of the total number of shares of Stock outstanding
at the effective time of such grant. Notwithstanding the foregoing, the number
of shares that may be delivered upon the exercise of ISOs shall not exceed
2,200,000, provided, however, that shares subject to ISOs shall not be
deemed delivered if such ISOs are forfeited, expire or otherwise terminate
without delivery of shares to the Participant. If an Award valued by reference
to Stock may only be settled in cash, the number of shares to which such Award
relates shall be deemed to be Stock subject to such Award for purposes of this
Section 4(a). Any shares of Stock delivered pursuant to an Award may consist, in
whole or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market for a Participant's Account.
(2) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
750,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of Award. This provision sets forth two separate limitations,
so that Awards that may be settled solely by delivery of Stock will not operate
to reduce the amount of cash-only Awards, and vice versa; nevertheless, Awards
that may be settled in Stock or cash must not exceed either limitation.
(3) Adjustments. In the event that the Committee shall determine that
any recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants
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under the Plan, then the Committee shall, in such manner as it may deem
equitable, adjust any or all of (i) the number and kind of shares of Stock
reserved and available for Awards under Section 4(a), including shares reserved
for ISOs, (ii) the number and kind of shares of Stock to be subject to Options
granted pursuant to Section 8, (iii) the number and kind of shares of Stock
specified in the Annual Per-Participant Limitations under Section 4(b), (iv) the
number and kind of shares of outstanding Restricted Stock or other outstanding
Award in connection with which shares have been issued, (v) the number and kind
of shares that may be issued in respect of other outstanding Awards and (vi) the
exercise price, grant price or purchase price relating to any Award. (or, if
deemed appropriate, the Committee may make provision for a cash payment with
respect to any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards (including, without limitation, cancellation of unexercised or
outstanding Awards, or substitution of Awards using stock of a successor or
other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence and events
constituting a Change in Control) affecting the Company or any subsidiary or the
financial statements of the Company or any subsidiary, or in response to changes
in applicable laws, regulations, or accounting principles.
5. Eligibility. Directors, officers and employees of the Company and its
subsidiaries, and persons who provide consulting or other services to the
Company deemed by the Committee to be of substantial value to the Company, are
eligible to be granted Awards under the Plan. In addition, persons who have been
offered employment by the Company or its subsidiaries, and persons employed by
an entity that the Committee reasonably expects to become a subsidiary of the
Company, are eligible to be granted an Award under the Plan; provided, however,
that such Award shall be canceled if such person fails to commence such
employment, or such entity fails to become a subsidiary, and no payment of value
may be made in connection with such Award until such person has commenced such
employment or until such entity becomes a subsidiary.
6. Specific Terms of Awards.
(1) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as expressly provided by the Committee
(including for purposes of complying with the requirements of the Delaware
General Corporation Law relating to lawful consideration for the issuance of
shares), no consideration other than services will be required as consideration
for the grant (but not the exercise) of any Award.
(2) Options. The Committee is authorized to grant option to purchase
Stock (including "reload" options automatically granted to offset specified
exercises of Options) on the following terms and conditions ("Options"):
(1) Exercise Price. The exercise price per share of Stock
purchasable under an Option shall be determined by the Committee.
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(2) Time and Method of Exercise. The Committee shall determine
the time or times at which an Option may be exercised in whole or in
part, the methods by which such exercise price may be paid or deemed to
be paid, the form of such payment, including, without limitation, cash,
Stock, other Awards or awards granted under other Company plans or other
property (including notes or other contractual obligations of
Participants to make payment on a deferred basis, such as through
"cashless exercise" arrangements, to the extent permitted by applicable
law), and the methods by which Stock will be delivered or deemed to be
delivered to Participants.
(3) Termination of Employment. The Committee shall determine
the period, if any, during which Options shall be exercisable following
a Participant's termination of employment with the Company and its
subsidiaries. For this purpose, any sale of a subsidiary of the Company
pursuant to which it ceases to be a subsidiary of the Company shall be
deemed to be a termination of employment by any Participant employed by
such subsidiary. Unless otherwise determined by the Committee, (i)
during any period that an Option is exercisable following termination of
employment, it shall be exercisable only to the extent it was
exercisable upon such termination of employment, and (ii) if such
termination of employment is for cause, as determined in the discretion
of the Committee, all Options held by the Participant shall immediately
terminate.
(4) Sale of the Company. All Options outstanding under the Plan
shall terminate upon the consummation of any transaction whereby the
Company (or any successor to the Company or substantially all of its
business) becomes a wholly-owned subsidiary of any corporation, unless
such other corporation shall continue or assume the Plan as it relates
to Options then outstanding (in which case such other corporation shall
be treated as the Company for all purposes hereunder, and, pursuant to
Section 4(c), the Committee of such other corporation shall make
appropriate adjustment in the number and kind of shares of Stock subject
thereto and the exercise price per share thereof to reflect consummation
of such transaction). If the Plan is not to be so assumed, the Company
shall notify the Participant of consummation of such transaction at
least ten days in advance thereof.
(5) ISOs. The terms of any ISO granted under the Plan shall
comply in all respects with the provisions of Section 422 of the Code,
including but not limited to the requirement that no ISO shall be
granted with an exercise price less than 100% (110% for an individual
described in Section 422(b)(6) of the Code) of the Fair Market Value of
a share of Stock on the date of grant and granted no more than ten years
after the effective date of the Plan. If Stock acquired by exercise of
an ISO is sold or otherwise disposed of within two years after the date
of grant of the ISO or within one year after the transfer of such Stock
to the Participant, the holder of the Stock immediately prior to the
disposition shall promptly notify the Company in writing of the date and
terms of the disposition and shall provide such other information
regarding the disposition as the Company may reasonably require in order
to secure any deduction then available against the Company's or any
other corporation's
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taxable income. Each Option granted as an ISO shall be designated as
such in the Award Agreement relating to such Option.
(3) Stock Appreciation Rights. The Committee is authorized to grant
stock appreciation rights on the following terms and conditions ("SARs"):
(1) Right to Payment. An SAR shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess
of (A) the Fair Market Value of one share of Stock on the date of
exercise (or, if the Committee shall so determine in the case of any
such right other than one related to an ISO, the Fair Market Value of
one share at any time during a specified period before or after the date
of exercise), over (B) the grant price of the SAR as determined by the
Committee as of the date of grant of the SAR, which, except as provided
in Section 7(a), shall be not less than the Fair Market Value of one
share of Stock on the date of grant.
(2) Other Terms. The Committee shall determine the time or times
at which an SAR may be exercised in whole or in part, the method of
exercise, method of settlement, form of consideration payable in
settlement, method by which Stock will be delivered or deemed to be
delivered to Participants, whether or not an SAR shall be in tandem with
any other Award, and any other terms and conditions of any SAR. Limited
SARs that may only be exercised upon the occurrence of a Change in
Control may be granted on such terms, not inconsistent with this Section
6(c), as the Committee may determine. Limited SARs may be either
freestanding or in tandem with other Awards.
(4) Restricted Stock. The Committee is authorized to grant Stock that is
subject to restrictions based on continued employment on the following terms and
conditions ("Restricted Stock"):
(1) Grant and Restrictions. Restricted Stock shall be subject to
such restrictions on transferability and other restrictions, if any, as
the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such
installments, or otherwise, as the Committee may determine. Except to
the extent restricted under the terms of the Plan and any Award
Agreement relating to the Restricted Stock, a Participant granted
Restricted Stock shall have all of the rights of a stockholder
including, without limitation, the right to vote Restricted Stock or the
right to receive dividends thereon.
(2) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement,
or may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted
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Stock will be waived in whole or in part in the event of termination
resulting from specified causes.
(3) Certificates for Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine.
If certificates representing Restricted Stock are registered in the name
of the Participant, such certificates may bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock, the Company may retain physical possession of the
certificate, in which case the Participant shall be required to have
delivered a stock power to the Company, endorsed in blank, relating to
the Restricted Stock.
(4) Dividends. Dividends paid on Restricted Stock shall be
either paid at the dividend payment date in cash or in shares of
unrestricted Stock having a Fair Market Value equal to the amount of
such dividends, or the payment of such dividends shall be deferred
and/or the amount or value thereof automatically reinvested in
additional Restricted Stock, other Awards, or other investment vehicles,
as the Committee shall determine or permit the Participant to elect.
Stock distributed in connection with a Stock split or Stock dividend,
and other property distributed as a dividend, shall be subject to
restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Stock or other property has
been distributed, unless otherwise determined by the Committee.
(5) Deferred Stock. The Committee is authorized to grant units
representing the right to receive Stock at a future date subject to the
following terms and conditions ("Deferred Stock"):
(1) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred
Stock by the Committee (or, if permitted by the Committee, as elected by
the Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or otherwise, as
the Committee may determine.
(2) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that
is at that time subject to such forfeiture conditions shall be
forfeited; provided, however, that the Committee may provide, by rule
or regulation or in any Award Agreement, or may determine in any
individual case, that restrictions or forfeiture conditions relating
to Deferred Stock will be waived in whole or in part in the event of
termination resulting from specified causes.
(6) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements.
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(7) Dividend Equivalents. The Committee is authorized to grant awards
entitling the Participant to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Stock ("Dividend Equivalents"). Dividend Equivalents may be awarded on a
free-standing basis or in connection with another Award. The Committee may
provide that Dividend Equivalents shall be paid or distributed when accrued or
shall be deemed to have been reinvested in additional Stock, Awards or other
investment vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify.
(8) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(1) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Company, any subsidiary or any business entity to be acquired by the Company or
a subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Awards granted in addition to or in tandem with other
Awards or awards may be granted either as of the same time as or a different
time from the grant of such other Awards or awards.
(2) Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code).
(3) Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Company or a
subsidiary upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments or on a deferred basis. Such payments may include,
without limitation,
10
<PAGE>
<PAGE>
provisions for the payment or crediting of reasonable interest on installment or
deferred payments or the grant or crediting of Dividend Equivalents in respect
of installment or deferred payments denominated in Stock.
(4) Rule 16b-3 Compliance.
(1) Six-Month Holding Period. Unless a Participant could
otherwise dispose of equity securities, including derivative securities,
acquired under the Plan without incurring liability under Section 16(b)
of the Exchange Act, equity securities acquired under the Plan must be
held for a period of six months following the date of such acquisition,
provided that this condition shall be satisfied with respect to a
derivative security if at least six months elapse from the date of
acquisition of the derivative security to the date of disposition of the
derivative security (other than upon exercise or conversion) or its
underlying equity security.
(2) Other Compliance Provisions. With respect to a Participant
who is then subject to Section 16 of the Exchange Act in respect of the
Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction
by such a Participant is exempt from liability under Rule 16b-3, except
that such a Participant may be permitted to engage in a non-exempt
transaction under the Plan if written notice has been given to the
Participant regarding the non-exempt nature of such transaction. The
Committee may authorize the Company to repurchase any Award or shares of
Stock resulting from any Award in order to prevent a Participant who is
subject to Section 16 of the Exchange Act from incurring liability under
Section 16(b). Unless other wise specified by the Participant, equity
securities, including derivative securities, acquired under the Plan
which are disposed of by a Participant shall be deemed to be disposed of
in the order acquired by the Participant.
(5) Loan Provisions. With the consent of the Committee, and subject at
all times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(6) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall
11
<PAGE>
<PAGE>
consist of one or more business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the Committee but
subject to this Section 7(f). Performance objectives shall be objective and
shall otherwise meet the requirements of Section 162(m)(4)(C) of the Code.
Business criteria used by the Committee in establishing performance objectives
for Awards subject to this Section 7(f) shall be selected from among the
following:
(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Changes in annual revenues; and/or
(5) Strategic business criteria, consisting of one or
more objectives based on meeting specified revenue,
market penetration, geographic business expansion
goals, cost targets, and goals relating to
acquisitions or divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Achievement of performance objectives
with respect to such Awards shall be measured over a period of not less than one
year nor more than five years, as the Committee may specify. Performance
objectives may differ for such Awards to different Participants. The Committee
shall specify the weighting to be given to each performance objective for
purposes of determining the final amount payable with respect to any such Award.
The Committee may, in its discretion, reduce the amount of a payout otherwise to
be made in connection with an Award subject to this Section 7(f), but may not
exercise discretion to increase such amount, and the Committee may consider
other performance criteria in exercising such discretion. All determinations by
the Committee as to the achievement of performance objectives shall be in
writing. The Committee may not delegate any responsibility with respect to an
Award subject to this Section 7(f).
(7) Acceleration upon a Change of Control. Notwithstanding anything
contained herein to the contrary, all conditions and/or restrictions relating to
the continued performance of services and/or the achievement of performance
objectives with respect to the exercisability or full enjoyment of an Award
shall lapse immediately prior to a Change in Control, provided, however, that
such lapse shall not occur if (i) it is intended that the transaction
constituting such Change in Control be accounted for as a pooling of interests
under Accounting Principles Board Option No. 16 (or any successor thereto), and
operation of this Section 7(g) would otherwise violate Paragraph 47(c) thereof,
or (ii) the Committee, in its discretion, determines that such lapse shall not
occur, provided, further, that the Committee shall not have the discretion
granted in clause (ii) if it is intended that the transaction constituting such
Change in Control be accounted for as a pooling of interests under Accounting
Principles Board Option No. 16 (or any successor thereto), and such discretion
would otherwise violate Paragraph 47(c) thereof.
12
<PAGE>
<PAGE>
8. Options Granted Automatically to Non-Employee Directors.
(a) Initial Grants. On the later of (i) the date of a Non-Employee
Director's initial election to the Board and (ii) the commencement of an Initial
Public Offering, each newly-elected Non-Employee Director or Non-Employee
Director then serving upon such commencement date, as applicable, shall receive
an Option to purchase 10,000 shares of Stock.
(b) Annual Grants. Immediately following each annual meeting of the
Company's stockholders occurring after the date of the Initial Public Offering,
each person who at such time is serving as a Non-Employee Director and who was,
immediately prior to such meeting, serving as a Non-Employee Director, shall
receive an Option to purchase 5,000 shares of Stock; provided, however, that no
such Option shall be granted to any Non-Employee Director who was granted an
Option pursuant to Section 8(a) within the three month period preceding such
annual meeting.
(c) Exercise Price. The exercise price per share purchasable upon exercise
of an Option granted under this Section 8 will be equal to 100% of the Fair
Market Value of a share on the date of grant of the Option; provided, however,
that Options granted pursuant to Section 8(a) as of the commencement of an
Initial Public Offering shall be the Initial Public Offering price.
(d) Option Expiration. Each Option granted pursuant to this Section 8 will
expire at the earlier of (i) 10 years after the date of grant or (ii) one year
after the date the Non-Employee Director ceases to serve as a director of the
Company for any reason.
(e) Exercisability. Each Option granted pursuant to this Section 8 shall
become exercisable on the first anniversary of the date the Option is granted
and shall remain exercisable until its expiration pursuant to Section 8(d);
provided, however, that no Option shall become exercisable unless the Non-
Employee Director continued to serve as such throughout the 11 month period
following the date of Option grant, or has ceased to serve as such during such
11 month period by reason of his death or disability.
9. General Provisions.
(1) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation system
or any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.
(2) Limitations on Transferability. Awards and other rights under the
Plan will not be transferable by a Participant except by will or the laws of
descent and distribution or to a Beneficiary in the event of the Participant's
death, shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(3) No Right to Continued Employment or Service. Neither the Plan nor
any action taken hereunder shall be construed as giving any employee, director
or other person the right to be retained in the employ or service of the Company
or any of its subsidiaries, nor shall it interfere in any way with the right of
the Company or any of its subsidiaries to terminate any employee's employment
or other person's service at any time or with the right of the Board or
stockholders to remove any director.
(4) Taxes. The Company and any subsidiary is authorized to withhold from
any Award granted or to be settled, any delivery of Stock in connection with an
Award, any other payment relating to an Award or any payroll or other payment to
a Participant amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Company and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations.
(5) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the
13
<PAGE>
<PAGE>
record date is after such Board action if such stockholder approval is required
by any federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to him
(as such rights are set forth in the Plan and the Award Agreement). The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such Participant
under such Award (as such rights are set forth in the Plan and the Award
Agreement).
(6) No Rights to Awards; No Stockholder Rights. No person shall have any
claim to be granted any Award under the Plan (except as set forth in Section 8),
and there is no obligation for uniformity of treatment of Participants and
employees. No Award shall confer on any Participant any of the rights of a
stockholder of the Company unless and until Stock is duly issued or transferred
and delivered to the Participant in accordance with the terms of the Award or,
in the case of an Option, the Option is duly exercised.
(7) Unfunded Status of Awards; Creation of Trusts. The Plan is intended
to constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company;
provided, however, that the Committee may authorize the creation of trusts or
make other arrangements to meet the Company's obligations under the Plan to
deliver cash, Stock, other Awards, or other property pursuant to any Award,
which trusts or other arrangements shall be consistent with the "unfunded"
status of the Plan unless the Committee otherwise determines with the consent of
each affected Participant.
(8) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor any submission of the Plan or amendments thereto to the stockholders
of the Company for approval shall be construed as creating any limitations on
the power of the Board to adopt such other compensatory arrangements as it may
deem desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
(9) No Fractional Shares. No fractional shares of Stock shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(10) Governing Law. The validity, construction and effect of the Plan,
any rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the
14
<PAGE>
<PAGE>
laws of the State of Delaware, without giving effect to principles of conflicts
of laws, and applicable federal law.
(11) Effective Date; Plan Termination. The Plan shall become effective
as of the date of its adoption by the Board, subject to approval of the
Company's stockholders prior to the commencement of the Initial Public Offering,
and shall continue in effect until terminated by the Board.
15
<PAGE>
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARIES JURISDICTION OF INCORPORATION
- ------------------------------------------------------------------------------- -----------------------------
<S> <C>
Brandt Acquisition Corp. Delaware
Energy Systems Industries Acquisition Corp. Delaware
New England Mechanical Services Acquisition Corp. Delaware
Lee Acquisition Corp. Delaware
Hill York Acquisition Corp. Delaware
Hill York Service Acquisition Corp. Delaware
MSI Acquisition Corp. Delaware
Aircond Acquisition Corp. Delaware
Air Systems Acquisition Corp. Delaware
</TABLE>
<PAGE>
<PAGE>
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our reports as of the dates, and related
to the financial statements of the companies, listed below which appear in such
Prospectus:
<TABLE>
<CAPTION>
Company Date
--------- -------
<S> <C>
Enfinity Corporation May 13, 1998
Brandt Mechanical Services, Inc. March 23, 1998
Energy Systems Industries, Inc. March 23, 1998
New England Mechanical Services, Inc. May 13, 1998
Lee Company April 3, 1998
Hill York Corporation and Hill York
Service Corporation March 14, 1998
Mechanical Services of Orlando April 3, 1998
Aircond Corporation November 14, 1997
</TABLE>
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, Pennsylvania
May 13, 1998
<PAGE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Air Systems, Inc.:
The financial statements of Air Systems, Inc., to the extent and for the periods
indicated in their reports, have been included herein and in the registration
statement in reliance upon the report of Shilling & Kenyon, Inc., independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
/s/ Shilling & Kenyon, Inc.
.....................................
SHILLING & KENYON, INC.
San Jose, California
May 12, 1998
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Alan L. Barnes, Sr.
------------------------
Alan L. Barnes, Sr.
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Robert S. Lafferty
------------------------
Robert S. Lafferty
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ William B. Lee
------------------------
William B. Lee
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Charles P. Reagan
------------------------
Charles P. Reagan
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Anthony I. Shaker
------------------------
Anthony I. Shaker
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Mark A. Zilbermann
------------------------
Mark A. Zilbermann
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ Marty R. Kittrell
------------------------
Marty R. Kittrell
<PAGE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
OF
ENFINITY CORPORATION
The undersigned hereby consents to be named in the Registration Statement
on Form S-1 to be filed by Enfinity Corporation (the "Company") with the
Securities and Exchange Commission, as a director of the Company.
/s/ John W. Davis
------------------------
John W. Davis
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 72
<CURRENT-LIABILITIES> 70
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2
<TOTAL-LIABILITY-AND-EQUITY> 72
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<PAGE>
