EXHIBIT 1
ACQUISITION AGREEMENT
AMONG
BE AEROSPACE, INC.
AND
THE SELLERS NAMED HEREIN
Dated as of July 21, 1998
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Table of Contents
Page
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ARTICLE I - SALE AND PURCHASE OF THE SECURITIES..................... 2
1.1 Acquisition and Transfer of the
Securities.......................................... 2
1.2 Purchase Price and Payment.......................... 2
1.3 Purchase Price Adjustment........................... 3
1.4 Allocation of Purchase Price........................ 5
1.5 Registration of Purchaser Shares.................... 6
1.6 Guaranteed Value.................................... 6
1.7 Letter of Credit.................................... 7
1.8 Escrow.............................................. 7
ARTICLE II - THE CLOSING............................................. 8
2.1 Closing Date........................................ 8
2.2 Proceedings at Closing.............................. 8
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE
SELLERS ............................................ 9
3.1 Organization and Good Standing...................... 9
3.2 Authorization of Agreement.......................... 9
3.3 Capitalization; Shares; Subsidiaries................ 10
3.4 No Violations; Consents............................. 11
3.5 Real Property....................................... 12
3.6 Tangible Personal Property.......................... 14
3.7 Financial Statements; Absence of Certain
Changes............................................. 16
3.8 Conduct of Business................................. 16
3.9 Material Contracts.................................. 17
3.10 Intangible Property................................. 17
3.11 Taxes............................................... 18
3.12 Employees and Employee Benefits..................... 21
3.13 Litigation.......................................... 22
3.14 Compliance with Law................................. 22
3.15 Environmental Matters............................... 23
3.16 Insurance........................................... 24
3.17 Brokers............................................. 24
3.18 Securities Act...................................... 24
3.19 Inventories......................................... 24
3.20 No Undisclosed Liabilities.......................... 25
3.21 Receivables......................................... 25
3.22 Customers........................................... 26
3.23 Suppliers........................................... 26
3.24 Key Employees....................................... 26
3.25 Corporate Books and Record.......................... 27
3.26 Certain Interests................................... 27
(i)
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ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.............................................. 28
4.1 Organization and Good Standing...................... 28
4.2 Authorization of Agreement.......................... 28
4.3 No Violations; Consents............................. 29
4.4 Litigation.......................................... 29
4.5 Brokers............................................. 29
4.6 Securities Act...................................... 29
4.7 Condition of the Business........................... 30
4.8 Representation...................................... 30
ARTICLE V - COVENANTS OF THE SELLERS................................. 31
5.1 Cooperation; Consents and Conditions................ 31
5.2 Access to Documents; Opportunity to Ask
Questions........................................... 31
5.3 Conduct of Business................................. 32
5.4 Notices of Certain Events........................... 36
5.5 Confidentiality (Sellers)........................... 37
ARTICLE VI - COVENANTS OF THE PURCHASER.............................. 38
6.1 Cooperation; Consents and Conditions................ 38
6.2 Confidentiality (Purchaser)......................... 38
6.3 Notices of Certain Events........................... 38
ARTICLE VII - COVENANTS RELATING TO EMPLOYMENT AND
EMPLOYEE MATTERS.................................... 39
7.1 Employment and Employee Benefit Matters............. 39
ARTICLE VIII - CONDITIONS PRECEDENT TO THE PURCHASER'S
OBLIGATIONS........................................ 40
8.1 Representations, Warranties and
Covenants........................................... 40
8.2 Deliveries by the Sellers to the
Purchaser........................................... 41
8.3 ESOP Shares......................................... 42
8.4 No Prohibition...................................... 42
ARTICLE IX - CONDITIONS PRECEDENT TO THE SELLERS'
OBLIGATIONS............................................ 42
9.1 Representations, Warranties and
Covenants........................................... 42
9.2 Deliveries by the Purchaser to the
Sellers............................................. 43
9.3 No Prohibition...................................... 44
ARTICLE X - ADDITIONAL POST-CLOSING COVENANTS........................ 44
10.1 Further Assurances.................................. 44
10.2 Public Announcements................................ 44
10.3 Books and Records; Personnel........................ 44
(ii)
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10.4 Transitional Assistance............................. 45
ARTICLE XI - INDEMNIFICATION AND RELATED MATTERS..................... 45
11.1 Survival of Representations, Warranties............. 45
11.2 Obligations of the Sellers.......................... 46
11.3 Obligations of Purchaser..................... 47
11.4 Procedure........................................... 48
11.5 Miscellaneous....................................... 50
11.6 Notice of Non-Third Party Claims.................... 50
11.7 Certain Limitations................................. 50
11.8 Maximum Indemnification............................. 51
11.9 Subrogation......................................... 51
11.10 Adjustments to Indemnification
Obligations......................................... 51
11.12 Exclusive Remedy.................................... 52
11.13 No Consequential Damages............................ 53
ARTICLE XII - TERMINATION............................................ 53
12.1 Termination......................................... 53
12.2 Liabilities After Termination....................... 54
ARTICLE XIII - TAX MATTERS........................................... 54
13.1 Section 338(h)(10) Election; Tax Indemnity... 54
13.2 Tax Returns; Audits................................. 57
13.3 Cooperation and Exchange of Information............. 62
ARTICLE XIV - MISCELLANEOUS.......................................... 63
14.1 Certain Definitions................................. 63
14.2 Entire Agreement.................................... 71
14.3 Governing Law....................................... 71
14.4 Transfer and Other Taxes............................ 72
14.5 Expenses............................................ 72
14.6 Table of Contents and Headings...................... 72
14.7 Notices............................................. 73
14.8 Severability........................................ 74
14.9 Binding Effect; No Assignment....................... 74
14.10 Amendments.......................................... 74
14.11 Counterparts........................................ 74
(iii)
Exhibits and Schedules
Schedule 1.1 -- Sellers' Ownership of Securities
Schedule 1.2 -- Allocation of Purchaser Common
Stock and Preferred Stock
Schedule 1.4(a) -- Allocation of Purchase Price
Schedule 1.4(b) -- Asset Allocation
Schedule 3.1 -- Foreign Qualifications
Schedule 3.3(a) -- Ownership of Company Shares
Schedule 3.3(b) -- Ownership of Partnership Interests
in SMR Associates
Schedule 3.3(c) -- Ownership of Membership Interests
in SMR Developers
Schedule 3.3(d) -- Capitalization and Ownership of the
SMR Subsidiaries
Schedule 3.3(e) -- Certain Agreements
Schedule 3.4 -- Violations; Required Consents (SMR
Companies)
Schedule 3.5(a) -- SMR Properties
Schedule 3.5(c) -- Real Property Leases Terminating as
a result of the sale of the
Securities
Schedule 3.6(a) -- Personal Property Leases
Schedule 3.6(c) -- Excluded Property
Schedule 3.7 -- Initial Balance Sheet
Schedule 3.8 -- Conduct of Business
Schedule 3.9 -- Material Contracts
Schedule 3.10(a) -- Intangible Assets
Schedule 3.10(c) -- Supplemental Type Certificates and
Part Manufacturer Approvals
Schedule 3.11 -- Tax Matters
Schedule 3.12(a) -- Labor Matters
Schedule 3.12(b)(i) -- Employee Benefit Plans
Schedule 3.12(b)(ii) -- Employment and Severance Contracts
Schedule 3.13 -- Litigation
Schedule 3.14 -- Compliance with Law
Schedule 3.16 -- Insurance
Schedule 3.19 -- Title to Inventory (Exceptions)
Schedule 3.20 -- Disclosed Liabilities
Schedule 3.21 -- Receivables
Schedule 3.22 -- Certain Customer Information
Schedule 3.23 -- Certain Supplier Information
Schedule 3.24 -- Key Employees
Schedule 3.26(a) -- Certain Interests of Directors and
Officers
Schedule 3.26(b) -- Certain Debts Owed by Directors and
Officers
(iv)
Schedule 4.3 -- Violations; Required Consents
(Purchaser)
Schedule 5.3 -- Certain Bonus Payments
Schedule 7.1 -- Certain Healthcare Benefits
Schedule 11.2(c) -- Certain Environmental Matters
Schedule 11.3 -- DOL Settlement
Schedule 13.1(c) -- Estimate of Election Tax Cost
Exhibit A Registration Rights Agreement
Exhibit B Escrow Agreement
Exhibit C Letter of Credit
Exhibit D Standstill and Noncompete Agreement
Exhibit E Share Disposition Agreement
(v)
ACQUISITION AGREEMENT
---------------------
ACQUISITION AGREEMENT (the "Agreement"), dated as of July 21, 1998,
by and among BE Aerospace, Inc., a Delaware corporation (the "Purchaser"), and
the Sellers indicated on the signature pages hereto (collectively, the
"Sellers").
W I T N E S S E T H:
WHEREAS, SMR Aerospace, Inc., an Ohio corporation (the "Company"),
is engaged, through its subsidiaries, in the business of (a) designing and
certifying modifications to commercial aircraft in the interior reconfiguration,
crew rest compartment and airframe modification market sectors as well as
manufacturing related components and (b) manufacturing specialty products for
the aviation industry in the commercial aircraft, business/commuter aircraft and
government/industrial market sectors (collectively, the "Business"); and
WHEREAS, the Company owns all of the outstanding capital stock of
SMR Holdings, Inc., an Ohio corporation, which in turn owns all of the
outstanding capital stock of SMR Technologies, Inc., an Ohio corporation, and
76.4% of the outstanding capital stock of Flight Structures, Inc., a Washington
corporation ("FSI"); and
WHEREAS, the Company also owns all of the outstanding capital stock
of SMR Aerospace Management Company, Inc., an Ohio corporation, and Plush Xxxxx,
Inc., an Ohio corporation; and
WHEREAS, SMR Associates, an Ohio limited partnership ("SMR
Associates"), and SMR Developers, an Ohio limited liability company ("SMR
Developers"), own certain properties and equipment that are leased to the
Company's subsidiaries for use in the operation of the Business; and
WHEREAS, the Sellers collectively own all of the outstanding shares
of common stock of the Company (the "Shares"), and own all of the limited and
general partnership interests in SMR Associates (the "Partnership Interests")
and all of the membership interests in SMR Developers (the "LLC Interests" and,
together with the Shares and the Partnership Interests, the "Securities"); and
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WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Purchaser is entering into an agreement (the "ESOP Purchase
Agreement") with the Flight Structures, Inc. Employee Stock Ownership Plan (the
"FSI ESOP") for the purchase of 23.35% of the outstanding capital stock of FSI
owned by the FSI ESOP (the "ESOP Shares"); and
WHEREAS, the Purchaser desires to acquire the Securities from the
Sellers, and the Sellers desire to sell the Securities to the Purchaser, on and
subject to the terms and conditions set forth in this Agreement; and
WHEREAS, certain capitalized terms used herein are defined in
Section 14.1 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, and
upon the terms and subject to the conditions hereinafter set forth, the
Purchaser and the Sellers hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE SECURITIES
1.1 Acquisition and Transfer of the Securities. Upon the terms and
subject to the conditions hereinafter set forth, at the Closing (as defined in
Section 2.1 hereof), each Seller shall sell, assign, transfer, convey and
deliver to the Purchaser, and the Purchaser shall purchase, acquire and accept
from each such Seller, all of such Seller's right, title and interest in and to
the Securities set forth opposite such Seller's name on Schedule 1.1, free and
clear of all Liens.
1.2 Purchase Price and Payment. In consideration of the sale of the
Securities by the Sellers to the Purchaser, the Purchaser shall pay an aggregate
purchase price of $120,000,000.00 (One Hundred Twenty Million Dollars), subject
to adjustment as set forth in Section 1.3, which amount, as so adjusted, shall
be increased at a rate per annum equal to the prime rate of The Chase Manhattan
Bank plus 100 basis points, applied to the portion of the Purchase Price that
has not been converted to cash pursuant to this Section 1.2 and Sections 1.5 and
1.6 from and after October 15, 1998 until the Sellers receive aggregate Net
Proceeds (as defined in Section 1.6(b)) equal
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to such amount, as so adjusted and increased (the "Purchase Price"). The
Purchaser shall pay the Purchase Price by delivering to the Sellers and the
Escrow Agent pursuant to the Escrow Agreement referenced in Section 1.8 hereof
on the Closing Date (i) an aggregate of 4,000,000 shares of the Purchaser's
common stock, par value $.01 per share (the "Purchaser Common Stock") or, at the
option of the Purchaser, (ii) a combination of cash, Purchaser Common Stock and
non-voting convertible preferred stock of the Purchaser ("Purchaser Preferred
Stock"), provided, that the number of shares of Purchaser Common Stock into
which such Purchaser Preferred Stock are convertible, when aggregated with the
Purchaser Common Stock delivered to the Sellers and the Escrow Agent on the
Closing Date, shall equal 4,000,000. The Purchaser Common Stock and any
Purchaser Preferred Stock shall be allocated among the Sellers and the Escrow
Agent as set forth in Schedule 1.2. To the extent the product of (i) 4,000,000
and (ii) the average of the per share closing prices as reported on the NASDAQ
National Market System of shares of Purchaser Common Stock for the 20
consecutive trading days ending on (and including) the first trading day
immediately preceding the Closing Date is less than $120,000,000.00 (One Hundred
Twenty Million Dollars), then Purchaser shall pay the amount of such deficiency
on the Closing Date by wire transfer of immediately available funds to accounts
designated for such purpose by the Sellers and the Escrow Agent (the "Cash
Payment"). The Cash Payment shall be allocated among the Sellers and the Escrow
Agent in the same manner as the allocation of the Purchaser Common Stock and
Purchaser Preferred Stock set forth on Schedule 1.2. For purposes of this
Agreement, the shares of Purchaser Common Stock delivered to the Sellers and the
Escrow Agent at the Closing and the shares of Purchaser Common Stock into which
the Purchaser Preferred Stock so delivered at the Closing, if any, are
convertible are collectively referred to as the "Purchaser Shares."
1.3 Purchase Price Adjustment. (a) As soon as practicable (but in no
event later than 60 days) following the Closing Date, the Sellers shall prepare
and deliver to the Purchaser a consolidated and combined balance sheet for the
Company, SMR Associates and SMR Developers as of the Closing Date (the "Closing
Balance Sheet"), which shall include the Sellers' computation of the Net Worth
and the Debt and Related Costs as of the Closing Date. As used herein, "Net
Worth" as of the Closing Date means the aggregate shareholders' equity,
partners' capital and members' capital of the Company, SMR Associates and SMR
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Developers on such date as reflected on the Closing Balance Sheet. The "Debt and
Related Costs" as of the Closing Date means (i) the aggregate of the current
portion of long-term bank debt, current portion of capital lease obligations,
long-term bank debt (less current portion) and capital lease obligations (less
current portion) on such date plus (ii) all costs incurred or accrued by Sellers
in connection with the transactions contemplated hereby and the ESOP Purchase
Agreement, in each case as reflected on the Closing Balance Sheet. The Closing
Balance Sheet shall (i) fairly present the Net Worth and the Debt and Related
Costs as at the close of business on the Closing Date in accordance with GAAP
and on a basis consistent with the Initial Balance Sheet, and (ii) be prepared
as if the Closing Date were a fiscal year-end. The Purchaser shall provide the
Sellers and their representatives with access to the books and records of the
Company, SMR Associates and SMR Developers necessary to enable the Sellers to
prepare the Closing Balance Sheet.
(b) The Purchaser shall have a period of 30 days to review the
Closing Balance Sheet and the Sellers' computation of the Net Worth and the Debt
and Related Costs as of the Closing Date following delivery of the Closing
Balance Sheet by the Sellers. The Purchaser may dispute any amounts reflected in
the Sellers' computation of the Net Worth and the Debt and Related Costs as of
the Closing Date by giving notice in writing to the Sellers, specifying each of
the disputed items and setting forth in reasonable detail the basis for such
dispute.
(c) If a notice of disagreement shall be timely delivered pursuant
to Section 1.3(b) hereof, the parties shall, during the 10 days following such
delivery, use their reasonable best efforts to reach agreement on the disputed
items or amounts in order to determine, as may be required, the amount of the
Net Worth and the Debt and Related Costs as of the Closing Date. If, during such
period, the parties are unable to reach such agreement, they shall promptly
thereafter cause Xxxxxx Xxxxxxxx LLC, or if such firm declines to act in such
capacity, such other firm of independent nationally recognized accountants
mutually chosen by the Purchaser and the Sellers (the "Accounting Referee")
promptly to review this Agreement and the disputed items or amounts for the
purpose of calculating the Net Worth and the Debt and Related Costs as of the
Closing Date. In making such calculation, the Accounting Referee shall consider
only those items or amounts in the Closing Balance Sheet or the Sellers'
computation of the Net Worth and the
4
Debt and Related Costs as to which the Purchaser has disagreed. The Accounting
Referee shall deliver to the Sellers and the Purchaser, as promptly as
practicable, a report setting forth such calculation. Such report shall be final
and binding upon the parties hereto. The cost of such review and report shall be
borne by the party whose calculation of the disputed item is furthest from the
Accounting Referee's calculation. As used herein, "Final Net Worth" and "Final
Debt and Related Costs" means (i) the Sellers' computation of the Net Worth and
the Debt and Related Costs, if no notice of disagreement is delivered by the
Purchaser during the period provided in Section 1.3(b), or (ii) if such a notice
of disagreement is delivered by the Purchaser, either (A) as agreed by the
Sellers and the Purchaser or (B) as shown in the Accounting Referee's
calculation delivered pursuant to this Section 1.3(c).
(d) If the Final Net Worth is less than $16,509,687, then the
Purchase Price shall be reduced by such difference. If the Final Net Worth is
greater than $16,509,687, then the Purchase Price shall be increased by such
excess.
(e) If the Final Debt and Related Costs is greater than
$6,700,000.00, then the Purchase Price shall be reduced by such excess. There
shall be no adjustment under this Section 1.3(e) if the Final Debt and Related
Costs is less than $6,700,000.00.
1.4 Allocation of Purchase Price. (a) The Purchase Price shall
be allocated among the Partnership Interests, the LLC Interests and the Shares
in the manner set forth on Schedule 1.4(a).
(b) In the event the Sellers and the Purchaser make the Election (as
defined in Section 13.1 hereof), the Purchase Price allocated to the Shares on
Schedule 1.4(a), and the liabilities and other relevant items of the SMR
Subsidiaries (other than FSI and its Subsidiaries) to the extent provided in the
Treasury Regulations promulgated under Section 338(h)(10) of the Code, shall be
further allocated among the assets of the SMR Subsidiaries (other than FSI and
its Subsidiaries) in the manner set forth on Schedule 1.4(b).
(c) The Purchaser and the Sellers shall prepare and file all tax
returns relating to the sale of the Securities hereunder in a manner consistent
with the
5
allocations set forth on Schedule 1.4(a) and, if the Election is made,
Schedule 1.4(b).
1.5 Registration of Purchaser Shares. Purchaser shall use
commercially reasonable efforts to file a registration statement permitting the
public sale of the Purchaser Shares as soon as reasonably practicable after the
Closing Date, and to cause such registration statement (which shall include
interim financial statements of the Purchaser and its subsidiaries for the
fiscal quarter ending August 31, 1998) to become effective as soon as
practicable after August 31, 1998. Purchaser shall use commercially reasonable
efforts to effectuate a fully underwritten public offering of common stock of
Purchaser which will include such Purchaser Shares (the "Public Offering") by
one or more underwriters to be selected by Purchaser. The Sellers shall be
required to sell as many Purchaser Shares in the Public Offering as the
underwriter(s) and Purchaser shall request, up to the entire amount of Purchaser
Shares received by them in connection with the transactions contemplated hereby
(including shares held in escrow pursuant to the arrangements described in
Section 1.8 hereof). In the event that not all of the Purchaser Shares received
by the Sellers or held in escrow are sold in the Public Offering,
notwithstanding the reasonable commercial efforts of Purchaser to effectuate the
Public Offering, Purchaser shall use commercially reasonable efforts to file and
cause to become effective a shelf registration (the "Shelf Registration") with
respect to any unsold shares as soon as reasonably practicable after the
termination of the Public Offering and maintain such Shelf Registration in
effect through December 31, 1998 to facilitate the sale of such shares.
Purchaser Shares shall be sold under the Shelf Registration as directed and
approved by Purchaser, utilizing brokers or underwriters approved by Purchaser.
The obligation of the parties described in this Section 1.5 are to be more fully
described in the Registration Rights Agreement.
1.6 Guaranteed Value. (a) In the event that the aggregate Net
Proceeds (as defined below) received prior to December 31, 1998 by the Sellers
and the Escrow Agent from sales in the Public Offering or pursuant to the Shelf
Registration of the Purchaser Shares plus the Cash Payment, if any, are less
than the Purchase Price (including any increase in the Purchase Price after
October 15, 1998 as provided in Section 1.2), then, on December 31, 1998, (i)
Purchaser shall pay to Sellers and the Escrow Agent an
6
aggregate amount equal to the Purchase Price minus the sum of the Net Proceeds
previously received by the Sellers and the Cash Payment, if any. In the event
that the aggregate Net Proceeds received by the Sellers and the Escrow Agent
from the sale of Purchaser Shares plus the Cash Payment, if any, exceeds the
Purchase Price, all such excess Net Proceeds shall be refunded to Purchaser. In
either event, the Sellers and Escrow Agent shall transfer to Purchaser all
Purchaser Shares that they have not previously sold.
(b) As used herein, "Net Proceeds" means (x) in the case of an
underwritten sale of Purchaser Shares, the gross proceeds received by the
Sellers and the Escrow Agent in such sale net of underwriter's discounts,
commissions and other expenses paid by the Sellers (whether incurred by the
Sellers, Purchaser, the underwriters or any advisors, and including, without
limitation, accounting and legal fees) in connection with such sale and (y) in
the case of any other sale of such shares, the gross proceeds received by the
Sellers and the Escrow Agent net of selling commissions paid in connection with
such sale and all other expenses paid by the Sellers (whether incurred by the
Sellers, Purchaser, the placement agents or any advisors, and including, without
limitation, accounting and legal fees) in connection with such sale.
1.7 Letter of Credit. At the Closing, Purchaser shall deliver to
Sellers an irrevocable letter of credit in the form of Exhibit C (the "Letter of
Credit") in the amount of $120,000,000.00 (One Hundred Twenty Million Dollars)
(which amount shall automatically adjust to reflect the adjustment provided for
in Section 1.3 and to reflect the increase, if any, provided for in Section 1.2)
in favor of the Sellers securing Purchaser's obligation under Section 1.6. The
Letter of Credit shall be issued by The Chase Manhattan Bank or another
financial institution acceptable to Sellers.
1.8 Escrow. At the Closing, Purchaser shall hold back from Sellers
and deposit 400,000 Purchaser Shares and 10% of the Cash Payment, if any, into
an escrow account to be established with an escrow agent (the "Escrow Agent")
mutually acceptable to the parties and pursuant to an escrow agreement, dated
the Closing Date, substantially in the form of Exhibit B (the "Escrow
Agreement"), which Escrow Agent will hold such property as provided therein as
security for the obligations of the Sellers under Section 11.2(b) hereof. In the
Public Offering and any other sale of Purchaser
7
Shares, shares held in escrow will be sold only after all other shares have been
sold. The proceeds of the sales of shares held in escrow also shall be held in
escrow and invested in investment grade securities as designated by the Sellers.
Following the sales of Purchaser Shares provided for in Section 1.5 and the cash
payments, if any, by Purchaser pursuant to Section 1.6 and the refund, if any,
referred to in the last sentence of Section 1.6(a), the Escrow Agent shall hold
10% of the Purchase Price.
ARTICLE II
THE CLOSING
2.1 Closing Date. The Closing shall take place at the offices of
Weil, Gotshal & Xxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 10:00
A.M., on the second business day following the satisfaction or waiver of the
last of the conditions to Closing set forth in Articles VIII and IX hereof, or
at such other place and at such other time and date as may be mutually agreed
upon by the Purchaser and the Sellers. The date of the Closing is referred to in
this Agreement as the "Closing Date." Notwithstanding the foregoing, the parties
agree that the Purchaser intends, for financial reporting purposes, to treat the
Closing and transfer of effective control of the SMR Companies as if it had
occurred on August 1, 1998.
2.2 Proceedings at Closing. All proceedings to be taken and all
documents to be executed and delivered by any of the Sellers and the Company in
connection with the consummation of the transactions contemplated hereby shall
be reasonably satisfactory in form and substance to the Purchaser and its
counsel. All proceedings to be taken and all documents to be executed and
delivered by the Purchaser in connection with the consummation of the
transactions contemplated hereby shall be reasonably satisfactory in form and
substance to the Sellers, the Company and their counsel. All proceedings to be
taken and all documents to be executed and delivered by all parties at the
Closing shall be deemed to have been taken, executed and delivered
simultaneously, and no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each Seller jointly and severally represents and warrants to the
Purchaser as follows:
3.1 Organization and Good Standing. Each of the SMR Companies is a
corporation, limited partnership or limited liability company, as the case may
be, validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation. Each of the SMR Companies has the requisite
corporate, partnership or limited liability company, as the case may be, power
and authority to carry on its business as it is now being conducted and is duly
qualified or authorized to do business and is in good standing under the laws of
(i) each jurisdiction in which it owns or leases real property and (ii) each
other jurisdiction in which the conduct of its business or the ownership of its
properties requires such qualification or authorization, except where the
failure to be so duly qualified or authorized and in good standing would not
have a Material Adverse Effect. Schedule 3.1 sets forth a true, correct and
complete list of each jurisdiction in which any of the SMR Companies is
qualified or authorized to do business as a foreign corporation, limited
partnership or limited liability company, as the case may be. The Sellers have
made available to the Purchaser complete and correct copies of the charter,
by-laws, limited partnership agreement, operating agreement, or other
organizational documents, as applicable, of each of the SMR Companies, and all
amendments thereto.
3.2 Authorization of Agreement. This Agreement has been, and each
other agreement, document, instrument or certificate contemplated by this
Agreement to be executed by such Seller in connection with the consummation of
the transactions contemplated by this Agreement (all such other agreements,
documents, instruments and certificates required to be executed by such Seller
being hereinafter referred to, collectively, as such "Seller's Documents"), will
be at or prior to the Closing, duly executed and delivered by such Seller, and
(assuming the due authorization, execution and delivery by the other parties
hereto and thereto) this Agreement constitutes, and such Seller's Documents when
so executed and delivered will constitute, legal, valid and binding obligations
of such Seller, enforceable against such Seller in accordance with their
respective terms, subject to
9
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.3 Capitalization; Shares; Subsidiaries.
(a) The authorized capital stock of the Company consists of shares
of common stock, par value $.01 per share (the "Common Stock"), of which 300
Shares are issued and outstanding and held of record by the holders set forth on
Schedule 3.3(a).
(b) Schedule 3.3(b) sets forth each of the limited and general
partners of SMR Associates and the percentage partnership interest in SMR
Associates owned by each such partner. The partnership interests in SMR
Associates are not documented by certificates or other documentary evidence.
(c) Schedule 3.3(c) sets forth each of the members of SMR Developers
and the percentage limited liability company interest in SMR Developers owned by
each such member. The limited liability company interests in SMR Developers are
not documented by certificates or other documentary evidence.
(d) Schedule 3.3(d) sets forth with respect to each SMR Subsidiary,
the number of shares of its authorized capital stock, the number of shares
thereof issued and outstanding, and the record holders thereof. Certain
individuals other than the Sellers own .25% of the outstanding stock of FSI, and
the purchase by Purchaser of such FSI shares is not a condition to the Closing
of the transactions contemplated hereby.
(e) The outstanding equity interests in each of the SMR Companies
are validly issued, fully paid and non-assessable and are owned by the holders
thereof free and clear of all Liens. Except as set forth on Schedule 3.3(e),
there are no outstanding options, warrants, calls, rights, commitments or
agreements of any kind to which any of the SMR Companies is a party or by which
it is bound obligating it to issue, deliver or sell, or cause to be issued,
delivered or sold, additional equity interests in such SMR Company, or any
securities convertible or exchangeable into or evidencing the right to purchase
any such equity
10
interests, or obligating it to grant, extend or enter into any such option,
warrant, call, right, commitment or agreement. Except as set forth on Schedule
3.3(e), there are no outstanding contractual obligations of any of the SMR
Companies to repurchase, redeem or otherwise acquire any of its equity
interests.
(f) Such Seller is the record and beneficial owner of the Securities
as shown on Schedule 1.1, free and clear of Liens, and has all right, power and
authority to sell, convey, assign, transfer and deliver to Purchaser good title
to the Securities owned by him. Upon consummation of the transactions
contemplated by this Agreement and registration of the Securities in the name of
the Purchaser on the stock records of the Company, the membership interests
records of SMR Developers and the partnership interests records of SMR
Associates, as applicable, the Purchaser, assuming it shall have purchased the
Securities for value and in good faith and without notice of any adverse claim,
will own all of the issued and outstanding (i) capital stock of the Company,
(ii) membership interests of SMR Developers and (iii) partnership interests of
SMR Associates, free and clear of all Liens.
(g) Except for interests in the SMR Subsidiaries, neither the
Company nor any other SMR Company has any Subsidiaries, nor does any of them own
or hold beneficially any shares of any class in the capital of any corporation
nor does any of them beneficially own any interests in any partnerships,
business trusts or joint ventures or in any other unincorporated trade or
business enterprises.
(h) The SMR Companies include all of the operating entities and
assets controlled directly or indirectly by the Sellers related to the Business.
3.4 No Violations; Consents. None of the execution and delivery by
such Seller of this Agreement and such Seller's Documents, or the consummation
of the transactions contemplated hereby or thereby, or compliance by such Seller
with any of the provisions hereof or thereof will (a) conflict with, or result
in the breach of, any provision of the certificate of incorporation, by-laws,
limited partnership agreement, certificate of formation, operating agreement or
other governing charter document of any SMR Company or any trust document of any
Seller, (b) assuming compliance with the matters referred to on
11
Schedule 3.4, constitute a violation of any Law applicable to any SMR Company or
any Seller, (c) result in the creation of any Lien (other than any Lien in favor
of the Purchaser) upon the Securities or any of the assets of any of the SMR
Companies, or (d) except as set forth on Schedule 3.4, conflict with, result in
a breach of, or give rise to any termination or right to terminate under any
Real Property Lease, Personal Property Lease or Material Contract, except for
such conflicts, breaches and terminations as would not have a Material Adverse
Effect. Except as set forth on Schedule 3.4, no consent, waiver, approval,
Order, Permit or authorization of, or declaration or filing with, or
notification to, any Governmental Body is required on the part of any SMR
Company or any Seller in connection with the execution, delivery and performance
of this Agreement or the Sellers' Documents.
3.5 Real Property. (a) Schedule 3.5 sets forth a complete list of
(i) all real property and interests in real property owned in fee by the SMR
Companies (individually, an "Owned Property" and, collectively, the "Owned
Properties"), and (ii) all real property and interests in real property leased
or subleased by the SMR Companies (individually, a "Real Property Lease" and,
collectively, the "Real Property Leases"; the real properties specified in such
leases, together with the Owned Properties, being referred to herein
individually as an "SMR Property" and collectively as the "SMR Properties").
Each of the SMR Companies has good and marketable fee title to the Owned
Properties owned by it, free and clear of all Liens of any nature whatsoever
except (A) Liens set forth on Schedule 3.5 and (B) Permitted Exceptions. The SMR
Properties constitute all interests in real property currently used or currently
held for use in connection with the Business and which are necessary for the
continued operation of the Business as currently conducted. Each of the SMR
Companies has a valid and enforceable leasehold interest under each of the Real
Property Leases to which it is a party, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity), and none of the SMR Companies is in material
default under any of the Real Property Leases or within the 12-month period
ending on the date hereof has received any written notice of default or event
that with notice or lapse of time, or both, would constitute a default under any
of
12
the Real Property Leases. To such Seller's knowledge, no third party is in
material breach of a Real Property Lease. The Sellers have delivered or
otherwise made available to the Purchaser true, correct and complete copies of
(i) all deeds, title reports and surveys for the Owned Properties presently in
the possession of Sellers or the SMR Companies and (ii) the Real Property
Leases, together with all amendments, modifications or supplements, if any,
thereto.
(b) There are no latent defects or adverse physical conditions
affecting the SMR Properties or any the facilities, structures, buildings,
erections, improvements, fixtures, fixed assets and personalty of a permanent
nature annexed, affixed or attached to, located on, or forming part of the SMR
Properties, except for such defects or conditions as would not have a Material
Adverse Effect. Each SMR Company is in peaceful and undisturbed possession of
each parcel of SMR Property, and there are no contractual or legal restrictions
that preclude or restrict in a material way the ability to use the premises for
the purposes for which they are currently being used.
(c) Except as otherwise disclosed in Schedule 3.5(c) with respect to
each such Real Property Lease: (i) none of the SMR Companies has received any
notice of cancellation or termination and no lessor has any right of termination
or cancellation except in connection with the default of any SMR Company
thereunder and (ii) none of the SMR Companies has granted to any other Person
any rights, adverse or otherwise, thereunder. Except as otherwise set forth in
Schedule 3.5(c) each Real Property Lease will not cease to be legal, valid,
binding, enforceable, and in full force and effect on terms identical to those
currently in effect as a result of the consummation of the transactions
contemplated by this Agreement.
(d) No improvements on the SMR Properties and none of the current
uses and conditions thereof violate any applicable deed restrictions or other
applicable covenants, restrictions, agreements, existing site plan approvals,
zoning or subdivision regulations or urban redevelopment plans as modified by
any duly issued variances, except for such violations as would not have a
Material Adverse Effect. No permits, licenses or certificates pertaining to the
ownership or operation of all improvements on the SMR Properties, other than
those which are transferable with the SMR Property, are required by any
Governmental Authority having jurisdiction over the SMR Property, except for
such
13
permits, licenses or certificates the failure to have or transfer would not have
a Material Adverse Effect.
(e) Except for leases or subleases entered into by and between SMR
Companies, the rental set forth in each Real Property Lease is the actual rental
being paid, and there are no separate agreements or understandings with respect
to the same.
(f) The SMR Companies have, and upon the Closing the SMR Companies
will have, the full right to exercise any renewal options contained in the Real
Property Leases on the terms and conditions contained therein.
3.6 Tangible Personal Property. (a) Schedule 3.6(a) sets forth all
leases of personal property ("Personal Property Leases") involving annual
payments in excess of $15,000 relating to personal property used in the Business
by the SMR Companies or to which any of the SMR Companies is a party or by which
the properties or assets of any such SMR Company is bound. The Sellers have
delivered or otherwise made available to the Purchaser true, correct and
complete copies of the Personal Property Leases, together with all amendments,
modifications or supplements thereto, if any.
(b) Each of the SMR Companies has a valid and enforceable leasehold
interest under each of the Personal Property Leases to which it is a party,
subject to applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), and none of the SMR
Companies is in material default under any of the Personal Property Leases or
within the 12 month period ending on the date hereof has received any written
notice of default or event that with notice or lapse of time, or both, would
constitute a default under any of the Personal Property Leases. To such Seller's
knowledge, no third party is in material breach of a Personal Property Lease.
(c) Each of the SMR Companies has good and marketable title to all
of the items of tangible personal property owned by it and reflected in the
Initial Balance Sheet (except as sold or disposed of subsequent to the date
thereof in the ordinary course of business consistent with past practice and the
provisions of this Agreement) (the
14
"Tangible Personal Property"), free and clear of Liens other than Permitted
Exceptions. The parties acknowledge that the personal property listed on
Schedule 3.6(c) is property of the Sellers and excluded from the transactions
contemplated hereby.
(d) Except for Intangible Assets (which are the subject of Section
3.10), each SMR Company owns, leases or has the legal right to use all the
properties and assets, including, without limitation, the SMR Properties and the
Tangible Personal Property, used by it in the conduct of the Business or
otherwise owned, leased or used by such SMR Company and, with respect to
contract rights, is a party to and enjoys the right to the benefits (subject to
the performance of its obligations) of all contracts, agreements and other
arrangements used by such SMR Company or in or relating to the conduct of the
Business (all such properties, assets and contract rights being the "Assets").
(e) The Assets and the Intangible Assets constitute all the
properties, assets and rights forming a part of, used or held in, and all such
properties, assets and rights as are necessary in the conduct of, the Business
as it is currently conducted. At all times since May 31, 1998, each SMR Company
has caused the Assets to be maintained in accordance with the SMR Companies past
business practice, and all the Assets are in good operating condition and repair
and are suitable for the purposes for which they are used and intended, subject
to normal wear and tear and except for such failure to be in good operating
conditions and repair as would not have a Material Adverse Effect.
(f) Following the consummation of the transactions contemplated by
this Agreement, each SMR Company will continue to own, pursuant to good and
marketable title, or lease, under valid and subsisting leases, or otherwise
retain its respective interest in the Assets or Intangible Assets without
incurring any penalty or other adverse consequence, including, without
limitation, any increase in rentals, royalties, or licenses or other fees
imposed as a result of, or arising from, the consummation of the transactions
contemplated by this Agreement. Immediately following the Closing, each SMR
Company shall own and possess all documents, books, records, agreements and
financial data of any sort used by such SMR Company in the conduct of the
Business or otherwise.
15
3.7 Financial Statements; Absence of Certain Changes. (a) Attached
as Schedule 3.7 is the consolidated and combined balance sheet of the SMR
Companies (the "Initial Balance Sheet") as at May 31, 1998 (the "Balance Sheet
Date"). The Sellers have furnished the Purchaser with a consolidated and
combined balance sheets as at December 31, 1997 and December 31, 1996, and the
related consolidated and combined statements of income, retained earnings,
partners' capital and members' capital, and cash flows for the years then ended
(collectively with the Initial Balance Sheet, the "Financial Statements"),
certified by Zalick, Torok, Kirgesner, Xxxx & Co. Such Financial Statements, (i)
were prepared in accordance with the books of account and other financial
records of the SMR Companies, (ii) have been prepared in accordance with GAAP
applied on a basis consistent with the past practices of the SMR Companies, and
(iii) fairly present in accordance with GAAP the consolidated and combined
financial condition and results of the operations of the SMR Companies and the
changes in their financial position at such dates and for such periods subject,
in the case of the Initial Balance Sheet, to customary year-end adjustments and
(iv) include all adjustments (consisting only of normal recurring accruals) that
are necessary for a fair presentation of the consolidated financial condition of
the SMR Companies and the results of operations of the SMR Companies as of the
dates thereof or for the periods covered thereby.
(b) The books of account and other financial records of the SMR
Companies: (i) reflect all items of income and expense and all assets and
Liabilities required to be reflected therein in accordance with GAAP applied on
a basis consistent with the past practices of the SMR Companies, (ii) are in all
material respects complete and correct, and do not contain or reflect any
material inaccuracies or discrepancies and (iii) have been maintained in
accordance with good business and accounting practices.
(c) Since December 31, 1997, there has been no Material Adverse
Change with respect to the SMR Companies.
3.8 Conduct of Business. Since December 31, 1997, the Business has
been operated in the ordinary course, consistent with past practice and, since
the May 31, 1998, except as set forth in Schedule 3.8 or as contemplated or
expressly required or permitted by this Agreement no SMR Company has taken any
action which, if taken subsequent to the execution of this Agreement and on or
prior to the
16
Closing Date, would constitute a breach of the Sellers' agreements set forth in
Section 5.3.
3.9 Material Contracts. Except as set forth in Schedules 3.5, 3.6,
3.9 or 3.10, none of the SMR Companies has or is bound by (a) any Contract
relating to the employment of any Person, (b) any Contract limiting the freedom
of any of the SMR Companies to engage in any line of business or to compete with
any other Person or (c) any Contract which involves payment by any of the SMR
Companies of $100,000 or more in any calendar year and is not cancelable by the
SMR Company without penalty within 30 days after notice is given to the
counterparty thereto, (d) any Contract relating to a capital lease obligation or
indebtedness for borrowed money (e) any broker, distributor, dealer,
manufacturer's representative, franchise, agency, sales promotion or advertising
Contract, or (f) any management Contracts or Contracts with independent
contractors or consultants, which are not cancelable without penalty or further
payment and without more than 30 days notice (the Contracts specified in clauses
(a) through (f) above being referred to as "Material Contracts"). The Sellers
have delivered or otherwise made available to the Purchaser true, correct and
complete copies of the Material Contracts, together with all amendments,
modifications or supplements thereto, if any. Each of the SMR Companies has a
valid and enforceable interest under each of the Material Contracts to which it
is a party, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity), and none
of the SMR Companies is in material default under any of the Material Contracts
or within the 12 month period ending on the date hereof has received any written
notice of default or event that with notice or lapse of time, or both, would
constitute a default under any of the Material Contracts. To each Seller's
knowledge, except as disclosed in Schedule 3.9, no third party is in material
breach of a Material Contract.
3.10 Intangible Property. (a) Schedule 3.10 (a) sets forth a list of
all patents, trademarks, trade names, service marks and copyrights owned by or
licensed to any of the SMR Companies and used in the Business (the "Intangible
Assets"), as well as a list of all registrations thereof and pending
applications therefor. Each of the Intangible
17
Assets owned by an SMR Company is owned free and clear of Liens (other than
Permitted Exceptions) and such SMR Company has good title thereto. The SMR
Companies collectively have adequate licenses or other valid rights to use all
of the Intangible Assets which they do not own and which are material to the
conduct of the Business. Each SMR Company's (i) use of the Intangible Assets and
(ii) conduct of the Business does not infringe upon or violate with any
intellectual property rights of any other Person, except for such matters as
would not have a Material Adverse Effect. Such Seller is not aware that any
third party is infringing or violating the Intangible Assets.
(b) Each SMR Company possesses and maintains all job files,
drawings, engineering and other reports, manuals, customer specifications,
manufacturing process documents, proprietary parts kits, and product
installation drawings necessary (i) for the conduct of the Business as currently
conducted and (ii) for the manufacture, installation and sale of all products
currently manufactured, installed or marketed by each SMR Company and the
provision of all services provided by each SMR Company.
(c) Set forth on Schedule 3.10(c) is a list of all Supplemental Type
Certificates and Parts Manufacturer Approvals held by the SMR Companies. All
such Supplemental Type Certificates and Parts Manufacturer Approvals are held by
each SMR Company free and clear of all Liens (other than Permitted Exceptions).
Each SMR Company has all (i) Supplemental Type Certificates, (ii) original
equipment manufacturer certifications, and (iii) Parts Manufacturer Approvals,
necessary for the manufacture, installation and sale of all products currently
manufactured, installed or marketed by each SMR Company and the provision of all
services provided by each SMR Company.
3.11 Taxes. (a) Each of the SMR Companies has timely filed, or there
has been filed on its behalf, all material federal, state, local and foreign Tax
Returns which, to the best knowledge (as defined in this Section 3.11(a)) of the
Sellers, are required to be filed by, or with respect to, the SMR Companies on
or prior to the date hereof (taking into account any extension of time to file
granted to or on behalf of any of the SMR Companies) (collectively, the
"Returns"), and all such Tax Returns are true, correct and complete in all
material respects. Except as set forth on Schedule 3.11, each of the SMR
Companies (i)(A) has paid (or there has been paid on their behalf) all
18
Income Taxes and all material other Taxes that are due from it or (B) has
provided for all such Taxes on its Financial Statements in accordance with GAAP,
and (ii) will provide for such Taxes (other than Taxes for which Purchaser will
be liable pursuant to Section 11.3(f)) on the Closing Balance Sheet in
accordance with the methodology used in preparing the Initial Balance Sheet and
in accordance with GAAP. Except as set forth in Schedule 3.11, all federal,
state, local and foreign income taxes or franchise or other Taxes based on
income (including interest and penalties) ("Income Taxes") shown to be due and
payable on the Returns have been paid. For purposes of this Section 3.11,
Seller's "knowledge" means the actual knowledge of Seller without any duty to
make any inquiry.
(b) Except as disclosed on Schedule 3.11, (i) the Company has not
executed any waivers or extensions of the applicable statutory period of
limitation for Taxes of the SMR Companies for any taxable period, which waivers
or extensions currently are pending, and (ii) no deficiency assessment or
proposed adjustment with respect to any Tax liability of any of the SMR
Companies for any taxable period is pending or, to the knowledge of the Company
and such Seller, threatened.
(c) At all times, the Company has had in effect a valid election
under Section 1362(a) of the Code to be taxed as an S corporation for federal
income tax purposes (an "S Election") and, to the best of the Sellers' knowledge
(as defined in Section 3.11(a)), except as set forth in Schedule 3.11, (i) a
comparable election in each state in which it conducts business or is subject to
Income Tax, and (ii) a comparable election in each locality in which it both
conducts business and is subject to a local Income Tax. The Company has not
received written notice of and is not aware of any proposal from the IRS or any
tax authority to disallow such S Election or such comparable election for any
taxable year. At all times until such SMR Subsidiary became a direct or indirect
subsidiary of the Company, each of the SMR Subsidiaries, except for FSI and its
Subsidiaries, had in effect a valid election under Section 1362 of the Code to
be treated as an S corporation for federal income tax purposes and, to the best
of the Sellers' knowledge (as defined in Section 3.11(a)), except as set forth
in Schedule 3.11, (i) a comparable election in each state in which it conducts
business or is subject to Income Tax, and (ii) a comparable election in each
locality in which it both conducts business and is subject to a local Income
Tax.
19
Since the SMR Subsidiaries, other than FSI and its Subsidiaries, became direct
or indirect subsidiaries of the Company, the Company has had in effect for each
such SMR Subsidiary a valid election to be taxed as a "qualified subchapter S
subsidiary" for federal income tax purposes and, to the best of the Sellers'
knowledge (as defined in Section 3.11(a)), except as set forth in Schedule 3.11,
and to the extent such election is provided for under applicable Tax law, (i) a
comparable election in each state in which it conducts business or is subject to
Income Tax, and (ii) a comparable election in each locality in which it both
conducts business and is subject to a local Income Tax. The Company has not
received written notice of and is not aware of any proposal from the IRS or any
tax authority to disallow any of such elections described above for any such SMR
Subsidiary for any taxable year.
(d) Each of SMR Associates and SMR Developers qualifies and since
its inception has always qualified as a partnership for U.S. federal income tax
purposes and is not and has not been taxable as a corporation for U.S. federal
income tax purposes under Section 7704 of the Code or otherwise.
(e) None of the SMR Companies has been a member of any affiliated
group for federal income Tax purposes with any other corporation (other than
another SMR Company). None of the SMR Companies has filed a Tax Return on a
consolidated, combined or unitary basis with any other corporation (other than
another SMR Company). None of the SMR Companies is a party to any Tax allocation
or Tax sharing agreement pursuant to which it will have any obligation to make
any payments after the Closing Date. Sellers are not aware that the receipt of
the Purchase Price for the Securities by the Sellers in the manner provided by
this Agreement (assuming the Election is made and consideration is allocated to
a covenant not to compete as provided in Schedule 1.4(b) hereof) should result
in the imposition of a greater amount of Tax liability on the Sellers than the
Tax liability that Sellers would have incurred were they to have received the
amount of such Purchase Price for the Securities in cash at the Closing
(assuming the Election is made and consideration is allocated to a covenant not
to compete as provided in Schedule 1.4(b) hereof).
(f) For purposes of this Agreement: (i) "Tax" or "Taxes" means any
and all taxes, fees, levies, duties,
20
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amount imposed with respect
thereto) imposed by any government or taxing authority, including, without
limitation, taxes or other charges on or with respect to income, franchises,
windfall or other profits, gross receipts, property, sales, use, capital stock,
payroll, employment, social security, workers' compensation, unemployment
compensation, or net worth; taxes or other charges in the nature of excise,
withholding, ad valorem, escheat, stamp, transfer, value added or gains taxes,
license, registration and documentation fees; and customs' duties, tariffs and
similar charges; and (ii) "Tax Return" means all returns, declarations, reports,
estimates, information returns and statements required to be filed in respect of
any Taxes.
3.12 Employees and Employee Benefits. (a) Except as set forth in
Schedule 3.12(a), (i) none of the SMR Companies is a party to any collective
bargaining agreement applicable to any of its employees, (ii) none of the
employees of any of the SMR Companies is represented by any labor organization,
(iii) there is no labor strike, work stoppage or slowdown pending against any of
the SMR Companies and no pending lockout by any of the SMR Companies, (iv) none
of the SMR Companies is in breach or is otherwise failing to comply with the
provisions of any collective bargaining or union contract, except for such
breaches or failures as would not have a Material Adverse Effect and there are
no grievances outstanding against any SMR Company under any such agreement or
contract which could have a Material Adverse Effect; (v) there are no unfair
labor practice complaints pending against any SMR Company before the National
Labor Relations Board or any other Governmental Body or any current union
representation questions involving employees of any SMR Company which could have
a Material Adverse Effect; (vi) each SMR Company currently is in compliance with
all applicable Laws relating to the employment of labor, including those related
to wages, hours, collective bargaining and the payment and withholding of taxes
and other sums as required by the appropriate Governmental Body and has withheld
and paid to the appropriate Governmental Body or is holding for payment not yet
due to such Governmental Body all amounts required to be withheld from employees
or such SMR Company and is not liable for any arrears of wages, taxes, penalties
or other sums for failure to comply with any of the foregoing, except for such
matters described in this clause (vi), as would not
21
have a Material Adverse Effect; and (vii) each SMR Company has paid in full to
all its employees or adequately accrued for in accordance with GAAP all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees. To each Seller's knowledge, there is no charge of
discrimination in employment practices, for any reason including, without
limitation, age, gender, race, religion or other legally protected category
which is pending or threatened before the United States Equal Employment
Opportunity Commission, or any other Governmental Body in any jurisdiction in
which such SMR Company employs any Person.
(b) Schedule 3.12(b)(i) lists each employee benefit plan as defined
in Section 3(3) of ERISA of any SMR Company covering any of its employees or
former employees (an "Employee Benefit Plan"). Schedule 3.12(b)(ii) lists each
employment or severance contract or arrangement, each plan or arrangement
providing for insurance coverage, severance, termination or similar coverage and
all written compensation policies and practices maintained by any SMR Company
covering any of its employees or former employees and that is not an Employee
Benefit Plan (a "Benefit Arrangement").
(c) Each Employee Benefit Plan is in compliance in all material
respects with the applicable requirements of ERISA and the Code.
3.13 Litigation. Except as set forth in Schedule 3.13, there is no
Legal Proceeding pending, or, to the knowledge of such Seller, threatened in
writing against any of the SMR Companies. None of the matters disclosed in
Schedule 3.13(i) has or has had a Material Adverse Effect or (ii) seeks to
enjoin or obtain damages in respect of the consummation of the transactions
contemplated by this Agreement or (iii) questions the validity of this Agreement
or such Seller's Documents or any action taken or to be taken by such Seller in
connection with the consummation of the transactions contemplated hereby or
thereby.
3.14 Compliance with Law. Except as set forth in Schedule 3.14, to
the knowledge of such Seller, each of the SMR Companies is conducting the
Business in compliance with all applicable Laws and Orders and currently is in
compliance with all applicable Laws and Orders, except where the failure to so
comply would not have a Material Adverse Effect.
22
3.15 Environmental Matters. (a) There are no pending or, to such
Seller's knowledge, threatened claims, suits or proceedings arising out of or
related to any environmental law or regulation in connection with the Business
or the ownership or use of the assets of any of the SMR Companies, including,
without limitation, statutes and regulations related to air quality, water
quality, solid waste management, hazardous or toxic substances or protection of
health or the environment, including, but not limited to, the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. 136 et seq. as amended),
the Federal Water Pollution Control Act (33 U.S.C. 1251 et seq. as amended), the
Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq. as amended), the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
(42 U.S.C. 9601 et seq. as amended), the Clean Air Act (42 U.S.C. 7401 et seq.
as amended), the Toxic Substances Control Act (15 U.S.C. 2601 et seq. as
amended), and any similar state or local laws, rules and regulations
(collectively, "Environmental Laws"). To such Seller's knowledge, each SMR
Company is in compliance with Environmental Laws, except for such noncompliance
as would not have a Material Adverse Effect. Each SMR Company has received all
Permits ("Environmental Permits") under Environmental Laws related to the
operation of the Business including all air, water and waste Permits and Permits
for emission and/or disposal of solid, liquid and gaseous materials from
manufacturing operations and is operating in compliance with each such Permit,
except where the failure to have received such Permits or lack of compliance
would not have a Material Adverse Effect.
(b) To the Sellers' knowledge none of the SMR Companies or any other
Person has, released solid, liquid or gaseous materials from manufacturing
operations on any of the SMR Properties or, during its ownership and occupancy
of such property, on any property formerly owned, leased, used or occupied by
any SMR Company in violation of applicable Environmental Laws, except for such
violations as would not have a Material Adverse Effect. None of the SMR
Companies is conducting, or has undertaken or completed, any investigation or
remedial action relating to any release or threatened release of solid, liquid
or gaseous materials from manufacturing operations at any of the SMR Properties
or at any other site, location or operation, either voluntarily or pursuant to
the Order of any Governmental Body or the requirements of any Environmental Law
or environmental permit.
23
(c) This Section 3.15 constitutes the sole and exclusive
representations and warranties regarding environmental matters, including, but
not limited to, those matters under Environmental Laws.
3.16 Insurance. Schedule 3.16 sets forth a list of all material
policies of insurance of any kind or nature covering the SMR Companies,
including, without limitation, policies of life, fire, theft, workers
compensation, employee fidelity and other casualty and liability insurance and
the SMR Companies have timely paid all premiums due thereunder. To the Seller's
knowledge, none of these policies is in default. True, correct and complete
copies of each such policy have been delivered or made available to the
Purchaser.
3.17 Brokers. No Person has acted directly or indirectly as a
broker, finder or financial advisor for any of the SMR Companies or such Seller
in connection with the negotiations relating to or the transactions contemplated
by this Agreement and no Person is entitled to any fee, commission or like
payment in respect thereof based in any way on any agreement, arrangement or
understanding made by or on behalf of any of the SMR Companies or such Seller,
except for Xxxxxxxx & Co. Inc. ("Schroders").
3.18 Securities Act. Such Seller is acquiring the Purchaser Shares
to be issued to him pursuant to Section 1.2 and not with a view to, or for sale
in connection with, any distribution thereof in violation of the Securities Act.
Such Seller acknowledges that the Purchaser Shares have not been registered
under the Securities Act or any applicable state securities Law and that such
Purchaser Shares may not be transferred or sold except pursuant to the
registration provisions of such Securities Act or pursuant to an applicable
exemption therefrom and pursuant to state securities Laws as applicable. Sellers
make no representations or warranties regarding the sales of Purchaser Common
Stock provided for in Section 1.5.
3.19. Inventories. (a) Subject to amounts reserved therefor on the
Initial Balance Sheet, the values at which all Inventories are carried on the
Initial Balance Sheet reflect the historical inventory valuation policy of the
SMR Companies of stating such Inventories at the lower of cost (determined as
set forth in the notes to the Financial Statements) or market value. Except as
set forth in Schedule 3.19, the SMR Companies have good and marketable
24
title to the Inventories free and clear of Liens other than Permitted
Exceptions. Schedule 3.19 is a complete list of the addresses of all warehouses
and other facilities in which the Inventories are located.
(b) Subject to amounts reserved therefore on the Initial Balance
Sheet, adequate provision has been made for Inventory items that are obsolete,
damaged or slow-moving. The Inventories reflected on the Initial Balance Sheet
are in good and merchantable condition in all material respects, are suitable
and usable for the purposes for which they are intended and are in a condition
such that they can be sold in the ordinary course of the Business consistent
with past practice. None of the SMR Companies is under any obligation or
liability with respect to accepting returns of items of Inventory or merchandise
in the possession of their customers other than in the ordinary course of
business consistent with past practice.
3.20. No Undisclosed Liabilities. To each Seller's knowledge, there
are no Liabilities of the SMR Companies, other than Liabilities (i) reflected or
reserved against on the Initial Balance Sheet, (ii) disclosed in Schedule 3.20
or (iii) incurred since the date of the Initial Balance Sheet in the ordinary
course of the Business, consistent with the past practice, of the SMR Companies
and which do not and would not have a Material Adverse Effect. Reserves are
reflected on the Initial Balance Sheet against all Liabilities of the SMR
Companies in amounts that have been established on a basis consistent with the
past practices of the SMR Companies and in accordance with GAAP.
3.21. Receivables. Schedule 3.21 sets forth an aged list of the
Receivables of the SMR Companies as of the Balance Sheet Date showing separately
those Receivables that as of such date had been outstanding (i) 29 days or less,
(ii) 30 to 59 days, (iii) 60 to 89 days, (iv) 90 to 119 days and (v) more than
119 days. Except to the extent, if any, reserved for on the Initial Balance
Sheet, all Receivables reflected on the Initial Balance Sheet arose from, and
the Receivables existing on the Closing Date will have arisen from, the sale of
Inventory or services to Persons not affiliated with any Seller or any SMR
Company and in the ordinary course of the Business consistent with past practice
and, except as reserved against on the Initial Balance Sheet, to the Seller's
knowledge, constitute or will constitute, as the case may be, only valid,
undisputed
25
claims of the SMR Companies not subject to valid claims of set-off or other
defenses or counterclaims other than normal cash discounts accrued in the
ordinary course of the Business consistent with past practice.
3.22. Customers. Listed in Schedule 3.22 are the names and addresses
of the ten most significant customers (by revenue) of the SMR Companies for the
twelve-month period ended May 31, 1998 and the amount for which each such
customer was invoiced during such period. Except as disclosed in Schedule 3.22,
none of the Sellers nor any SMR Company has received any notice that any
significant customer of any SMR Company has ceased, or will cease, to use the
products, equipment, goods or services of such SMR Company, or has substantially
reduced, or will substantially reduce, the use of such products, equipment,
goods or services at any time.
3.23. Suppliers. Listed in Schedule 3.23 are the names and addresses
of each of the ten most significant suppliers of raw materials, supplies,
merchandise and other goods for the SMR Companies for the twelve-month period
ended May 31, 1998 and the amount for which each such supplier invoiced the SMR
Companies during such period. Except as disclosed in Schedule 3.23, none of the
Sellers nor any SMR Company has received any notice that any such supplier will
not sell raw materials, supplies, merchandise and other goods to any SMR Company
at any time after the Closing Date on terms and conditions substantially similar
to those used in its current sales to such SMR Company, subject only to general
and customary price increases.
3.24. Key Employees. (a) Schedule 3.24 lists the name, place of
employment, the current annual salary rates, bonuses, deferred or contingent
compensation, pension, accrued vacation, "golden parachute" and other like
benefits paid or payable (in cash or otherwise) in 1995, 1996, 1997 and 1998,
the date of employment and a description of position and job function of each
current salaried employee, officer, director, consultant or agent of each SMR
Company (other than any Seller) whose annual compensation exceeded (or, in 1998,
is expected to exceed) $90,000.
(b) All directors, officers, management employees, and technical and
professional employees of each SMR Company are under written obligation to such
SMR Company to maintain in confidence all confidential or proprietary
26
information acquired by them in the course of their employment and to assign to
such SMR Company all inventions made by them within the scope of their
employment during such employment and for a reasonable period thereafter.
3.25. Corporate Books and Records. The minute books of each SMR
Company contain materially accurate records of all meetings and accurately
reflect in all material respects all other actions taken by the stockholders,
boards of directors and all committees of the boards of directors of such SMR
Company. Complete and accurate copies of all such minute books and of the stock
register of each SMR Company have been provided by the Sellers to the Purchaser.
3.26. Certain Interests. (a) Except as disclosed in Schedule
3.26(a), no officer or director of any SMR Company and no relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer or director:
(i) has any direct or indirect financial interest in any competitor,
supplier or customer of any SMR Company, provided, however, that the
ownership of securities representing no more than one percent of the
outstanding voting power of any competitor, supplier or customer, and
which are listed on any national securities exchange or traded actively in
the national over-the-counter market, shall not be deemed to be a
"financial interest" so long as the Person owning such securities has no
other connection or relationship with such competitor, supplier or
customer;
(ii) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which any SMR
Company uses or has used in the conduct of the Business or otherwise; or
(iii) has outstanding any Indebtedness to any SMR
Company
(b) Except as disclosed in Schedule 3.26(b), no officer or director
of any SMR Company and no relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer or director has outstanding
any Indebtedness to any Seller.
27
(c) Except as disclosed in Schedule 3.26(c), no SMR Company has any
Liability or any other obligation of any nature whatsoever to any officer,
director or shareholder of any SMR Company or to any relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer, director or shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to each Seller that:
4.1 Organization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to carry
on its business as it is now being conducted.
4.2 Authorization of Agreement. The Purchaser has full corporate
power and authority to execute and deliver this Agreement and each other
agreement, document, instrument or certificate contemplated by this Agreement or
to be executed by the Purchaser in connection with the consummation of the
transactions contemplated by this Agreement (all such other agreements,
documents, instruments and certificates required to be executed by the Purchaser
being hereinafter referred to, collectively, as the "Purchaser Documents") and
to perform fully its obligations hereunder and thereunder. The execution,
delivery and performance by the Purchaser of this Agreement and each Purchaser
Document has been duly authorized by the Purchaser's Board of Directors,
constituting all necessary corporate action on the part of the Purchaser. This
Agreement has been, and the Purchaser Documents will be at or prior to the
Closing, duly executed and delivered by the Purchaser and (assuming the due
authorization, execution and delivery by the other parties hereto and thereto)
this Agreement constitutes, and the Purchaser Documents when so executed and
delivered will constitute, legal, valid and binding obligations of the
Purchaser, enforceable against the Purchaser in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and subject,
as to enforceability, to general principles of equity (regardless
28
of whether enforcement is sought in a proceeding at law or in equity).
4.3 No Violations; Consents. None of the execution and delivery by
the Purchaser of this Agreement and the Purchaser Documents, or the consummation
of the transactions contemplated hereby or thereby, or compliance by the
Purchaser with any of the provisions hereof or thereof will (a) conflict with,
or result in the breach of, any provision of the certificate of incorporation or
by-laws of the Purchaser or (b) assuming compliance with the matters referred to
on Schedule 4.3, constitute a violation of any Law applicable to the Purchaser.
Except as set forth on Schedule 4.3, no consent, waiver, approval, Order, Permit
or authorization of, or declaration or filing with, or notification to, any
Governmental Body is required on the part of the Purchaser in connection with
the execution, delivery and performance of this Agreement or the Purchaser
Documents.
4.4 Litigation. There is no Legal Proceeding pending or, to the
knowledge of the Purchaser, threatened, that seeks to enjoin or obtain damages
in respect of the consummation of the transactions contemplated by this
Agreement or that questions the validity of this Agreement, the Purchaser
Documents or any action taken or to be taken by the Purchaser in connection with
the consummation of the transactions contemplated hereby or thereby.
4.5 Brokers. No Person has acted directly or indirectly as a broker,
finder or financial advisor for the Purchaser in connection with the
negotiations relating to or the transactions contemplated by this Agreement and
no Person is entitled to any fee or commission or like payment (other than from
the Purchaser) in respect thereof based in any way on agreements, arrangements
or understandings made by or on behalf of the Purchaser.
4.6 Securities Act. The Purchaser is acquiring the Securities solely
for the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof in violation of the Securities Act. The Purchaser
acknowledges that the Securities have not been registered under the Securities
Act or any applicable state securities Law and that such Securities may not be
transferred or sold except pursuant to the registration provisions of such
Securities Act or pursuant to an
29
applicable exemption therefrom and pursuant to state securities Laws as
applicable.
4.7 Condition of the Business. The Purchaser and its representatives
and agents have had and exercised, prior to the date hereof, the right to enter
upon the SMR Properties and to make all inspections and investigations of the
Business deemed necessary or desirable by the Purchaser. The Purchaser is not
purchasing the Securities based on any representation or warranty of the Sellers
not expressly set forth in this Agreement. In light of these inspections and
investigations, the Purchaser is relinquishing any right to any claim based on
any representations and warranties other than those specifically included in
this Agreement. Any claims the Purchaser may have for breach of representation
or warranty shall be based solely on the representations and warranties set
forth in this Agreement. All representations and warranties implied or arising
under statute or otherwise (other than the representations and warranties set
forth in this Agreement) hereby are waived by the Purchaser. In particular, the
Sellers make no representation or warranty to the Purchaser with respect to any
offering memoranda or financial projection or forecast relating to the SMR
Companies. With respect to any such projection or forecast delivered by or on
behalf of the Sellers to the Purchaser, the Purchaser acknowledges that (i)
there are uncertainties inherent in attempting to make such projections and
forecasts, (ii) it is familiar with such uncertainties, (iii) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it and (iv) it shall have no
claim against any of the Sellers with respect thereto. Nothing contained in this
Section 4.7 or any investigation or inspection by the Purchaser shall in any way
limit the ability of the Purchaser to rely upon the representations and
warranties made by the Sellers in this Agreement, subject to the terms and
conditions of this Agreement.
4.8 Representation. Purchaser is not aware that the receipt of the
Purchase Price for the Securities by the Sellers in the manner provided by this
Agreement (assuming the Election is made and consideration is allocated to a
covenant not to compete as provided in Schedule 1.4(b) hereof) should result in
the imposition of a greater amount of Tax liability on the Sellers than the Tax
liability that Sellers would have incurred were they to have received the amount
of such Purchase Price for the Securities in cash at
30
the Closing (assuming the Election is made and consideration is allocated to a
covenant not to compete as provided in Schedule 1.4(b) hereof).
ARTICLE V
COVENANTS OF THE SELLERS
From and after the date hereof and until the Closing, the Company
and each Seller jointly and severally covenants and agrees with the Purchaser
that:
5.1 Cooperation; Consents and Conditions. Such Seller shall use his
reasonable best efforts to take, or cause to be taken, all action to do, or
cause to be done, and to assist and cooperate with the other parties hereto in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) complying
with the HSR Act in all respects (including the filing of a notification and
report form to the extent necessary no later than the business day following the
execution of this Agreement), (b) obtaining all necessary waivers, consents and
approvals from Governmental Bodies and the making of all necessary registrations
and filings (including, but not limited to, filings with Governmental Bodies, if
any) and the taking of all reasonable steps as may be necessary to obtain any
approval or waiver from, or to avoid any action or proceeding by, any
Governmental Body, (c) obtaining all necessary consents, approvals or waivers
from third parties and (d) defending any lawsuits or any other Legal Proceedings
challenging this Agreement or the consummation of the transactions contemplated
hereby including, without limitation, seeking to have any temporary restraining
order entered by any court or administrative authority vacated or reversed.
5.2 Access to Documents; Opportunity to Ask Questions. Such Seller
shall provide the Purchaser with such information as the Purchaser from time to
time reasonably may request with respect to the SMR Companies, and shall permit
the Purchaser and any of the directors, officers, employees, counsel,
representatives, accountants and auditors (collectively, the "Purchaser
Representatives") reasonable access, during normal business hours and upon
reasonable prior notice, to the properties, records and
31
books of accounts, management and employees of the SMR Companies, as the
Purchaser from time to time reasonably may request. Until the Closing Date, all
information obtained by the Purchaser, and the manner in which it is obtained,
in connection with the transactions contemplated by this Agreement shall be
subject to the Confidentiality Agreement, dated as of June 5, 1998, between the
Purchaser and Schroders on behalf of the SMR Companies (the "Confidentiality
Agreement").
5.3 Conduct of Business. (a) Each Seller shall cause each of the SMR
Companies to, operate and conduct its business in the ordinary course consistent
with past practice. Without limiting the generality of the foregoing, except as
described in Schedule 5.3, each Seller shall cause each SMR Company to (i)
continue its advertising and promotional activities, and pricing and purchasing
policies, in accordance with past practice, (ii) not shorten or lengthen the
customary payment cycles for any of its payables or receivables, (iii) use
commercially reasonable efforts to (A) preserve its present business operations,
organization and goodwill, (B) keep available the services of its present
employees, (C) preserve its present relationships with customers, suppliers and
other Persons having business dealings with it, (D) maintain all of its assets
and properties in their current condition, normal wear and tear excepted, (E)
maintain insurance in such amounts and of such kinds as is comparable to that in
effect on the date hereof (with insurers of substantially the same or better
financial condition), (iv) exercise, but only after notice to the Purchaser and
receipt of the Purchaser's prior written approval, any rights of renewal
pursuant to the terms of any of the leases or subleases set forth in Schedule
3.5 which by their terms would otherwise expire; and (v) not engage in any
practice, take any action, fail to take any action or enter into any transaction
which would have the intent of causing any representation or warranty of any
Seller to be untrue or result in a breach of any covenant made by any Seller in
this Agreement.
(b) Such Seller shall not permit any of the SMR Companies to, do, or
agree or commit to do, any of the following without the prior written consent of
the Purchaser, which shall not be unreasonably withheld:
(i)(A) increase the rate of compensation
payable or to become payable to any of its employees
other than ordinary increases consistent with past
32
practice, (B) amend in any material respect any bonus, stock option, stock
purchase, profit-sharing, deferred compensation, pension, retirement or
other similar plan or arrangement to or in respect of any such employee
other than as may be required to maintain compliance with ERISA and/or the
Code, or (C) enter into any new, or amend in any respect any existing,
employment, severance or consulting agreement, sales agency or other
Contract with respect to the performance of personal services for any of
the SMR Companies, other than as may be required to maintain compliance
with ERISA and/or the Code, except that Purchaser agrees that the
individuals listed on Schedule 5.3 shall be paid by the SMR Companies the
bonuses set forth opposite their names on such Schedule 5.3 immediately
prior to the Closing;
(ii)(A) increase its indebtedness for borrowed money or
capital lease obligations, except in the ordinary course of business or in
connection with the payment of transaction expenses, (B) sell, assign,
transfer, convey, lease or otherwise dispose of any of its material
assets, other than inventory in the ordinary course of business, (C)
cancel or compromise any material debt or claim or waive or release any
material right, except for adjustments or settlements made in the ordinary
course of business consistent with past practice, (D) make any capital
expenditure in excess of $10,000 or series of capital expenditures of more
than $250,000 in the aggregate, (E) agree to amend, modify or supplement
any Real Property Lease, Personal Property Lease or Material Contract, or
(F) acquire any material assets other than in the ordinary course of
business;
(iii) declare, make or set aside funds for any dividend,
distribution or other payment in respect of its outstanding equity
interests, including any redemptions or repurchases thereof; provided,
however, that the Sellers shall be entitled to receive distributions
which, in the aggregate, do not exceed their federal, state and local tax
liability in respect of the taxable income of the SMR Companies through
and including the Closing Date (other than taxable income directly
resulting from the making of the Election), subject to any adjustments to
the Purchase Price required by Section 1.3. The foregoing shall not be
deemed to prohibit the distribution of SMR Associates
33
to each Seller of monthly cash compensation payments in the amount of
$20,000.00, which is consistent with past practice;
(iv) permit or allow any of the assets or properties
(whether tangible or intangible) of any SMR Company to be subjected to any
Lien, other than Permitted Exceptions and Liens that will be released at
or prior to the Closing;
(v) except in the ordinary course of business consistent
with past practice, discharge or otherwise obtain the release of any Lien
or pay or otherwise discharge any Liability, other than current
liabilities reflected on the Initial Balance Sheet and current liabilities
incurred in the ordinary course of business consistent with past practice
since the Balance Sheet Date (for the avoidance of doubt, nothing in the
Section 5.3(b)(v) will in any way restrict the SMR Companies' ability to
repay existing long-term debt);
(vi) make any loan to, guarantee any Indebtedness of or
otherwise incur any Indebtedness on behalf of any Person;
(vii) fail to pay any creditor any amount owed to such
creditor when due, except in respect of good faith disputes;
(viii) make any material changes in the customary methods of
operations of any SMR Company, including, without limitation, practices
and policies relating to manufacturing, purchasing, Inventories,
marketing, selling and pricing;
(ix) merge with, enter into a consolidation with or acquire
an interest of 5% or more in any Person;
(x) issue or sell any capital stock, notes, bonds or other
securities, or any option, warrant or other right to acquire the same, of,
or any other interest in, any SMR Company;
(xi) enter into any agreement, arrangement or transaction
with any of its directors, officers,
34
employees or shareholders (or with any relative, beneficiary, spouse or
Affiliate of any such Person);
(xii) write down or write up (or fail to write down or write
up in accordance with GAAP consistent with past practice) the value of any
Inventories or Receivables or revalue any assets of any SMR Company other
than in the ordinary course of business consistent with past practice and
in accordance with GAAP;
(xiii) make any change in any method of accounting or
accounting practice or policy used by any SMR Company, other than such
changes required by GAAP;
(xiv) allow any Permit that was issued or relates to any SMR
Company or otherwise relates to any Asset to lapse or terminate or fail to
renew any such Permit or any insurance policy that is scheduled to
terminate or expire within 45 calendar days of the Closing Date;
(xv) amend or restate the Certificate of Incorporation or
the By-laws (or other organizational documents) of any SMR Company;
(xvi) terminate, discontinue, close or dispose of any plant,
facility or other business operation, or lay off any employees (other than
layoffs of less than 50 employees in any six-month period in the ordinary
course of business consistent with past practice) or implement any early
retirement, separation or program providing early retirement window
benefits within the meaning of Section 1.401(a)-4 of the U.S. Treasury
Regulations promulgated with respect to the Code or announce or plan any
such action or program for the future;
(xvii) disclose any secret or confidential Intangible Assets
(except by way of issuance of a patent) or permit to lapse or go abandoned
any Intangible Assets (or any registration or grant thereof or any
application relating thereto) to which, or under which, any SMR Company
has any right, title, interest, or license;
35
(xviii) enter into any agreement for the purchase or sale of
goods or services by the Company for an amount in excess of $350,000 per
agreement;
(xix) fail to maintain the Assets in accordance with past
practice;
(xx) agree, whether in writing or otherwise, to take any of
the actions specified in this Section 5.3(b) or grant any options to
purchase, rights of first refusal, rights of first offer or any other
similar rights or commitments with respect to any of the actions specified
in this Section 5.3(b), except as expressly contemplated by this
Agreement.
(xxi) make any material tax election or settle or compromise
any material federal, state, local or foreign income Tax which could be
materially detrimental to the Purchaser.
5.4 Notices of Certain Events. Such Seller shall promptly
notify the Purchaser of:
(a) any notice or other communication (i) alleging that the consent
of any Person is or may be required in connection with the transactions
contemplated by this Agreement, or (ii) from any Person to the effect that such
Person intends not to continue to conduct business with any of the SMR Companies
after the Closing;
(b) any notice or other communication from any Government Body in
connection with the transactions contemplated by this Agreement; and
(c) any Legal Proceeding commenced or, to the best of his knowledge
threatened against, relating to or involving or otherwise affecting any of the
SMR Companies that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.13 hereof or that relate
to the consummation of the transactions contemplated by this Agreement.
36
SECTION 5.5. Confidentiality (Sellers). Each Seller agrees to: (i)
treat and hold as confidential (and not disclose or provide access to any Person
to) all information relating to trade secrets, processes, patent and trademark
applications, product development, price, customer and supplier lists, pricing
and marketing plans, policies and strategies, details of client and consultant
contracts, operations methods, product development techniques, business
acquisition plans, new personnel acquisition plans and all other confidential
information with respect to the Business and each SMR Company, (ii) in the event
that such Seller becomes legally compelled to disclose any such information,
provide the Purchaser with prompt written notice of such requirement so that the
Purchaser or any SMR Company may seek a protective order or other remedy, (iii)
in the event that such protective order or other remedy is not obtained, furnish
only that portion of such confidential information which is legally required to
be provided and exercise reasonable efforts to obtain assurances that
confidential treatment will be accorded such information, (iv) promptly furnish
(prior to, at, or as soon as practicable following, the Closing) to each SMR
Company or the Purchaser any and all copies (in whatever form or medium) of all
such confidential information then in the possession of such Seller and destroy
any and all additional copies then in the possession of such Seller of such
information and of any analyses, compilations, studies or other documents
prepared, in whole or in part, on the basis thereof; provided, however, that
this sentence shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by such Seller, provided, further that, with respect to Intangible
Property, specific information shall not be deemed to be within the foregoing
exception merely because it is embraced in general disclosures in the public
domain. In addition, with respect to Intangible Property, any combination of
features shall not be deemed to be within the foregoing exception merely because
the individual features are in the public domain unless the combination itself
and its principle of operation are in the public domain. Each Seller agrees and
acknowledges that remedies at law for any breach of his obligations under this
Section 5.5 are inadequate and that in addition thereto the Purchaser shall be
entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach.
37
ARTICLE VI
COVENANTS OF THE PURCHASER
From and after the date hereof, and until the Closing Date, the
Purchaser hereby covenants and agrees with the Sellers that:
6.1 Cooperation; Consents and Conditions. The Purchaser shall use
its reasonable best efforts to take, or cause to be taken, all action to do, or
cause to be done, and to assist and cooperate with the other parties hereto in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement, including, but not limited to, (a) complying
with the HSR Act in all respects (including the filing of a notification and
report form to the extent necessary no later than the business day following the
execution of this Agreement), (b) obtaining all necessary waivers, consents and
approvals from Governmental Bodies and the making of all necessary registrations
and filings (including, but not limited to, filings with Governmental Bodies, if
any) and the taking of all reasonable steps as may be necessary to obtain any
approval or waiver from, or to avoid any action or proceeding by, any
Governmental Body, (c) obtaining all necessary consents, approvals or waivers
from third parties and (d) defending any Legal Proceedings challenging this
Agreement or the consummation of the transactions contemplated hereby including,
without limitation, seeking to have any temporary restraining order entered by
any court or administrative authority vacated or reversed.
6.2 Confidentiality (Purchaser). The Purchaser shall comply with the
terms regarding confidentiality set forth in the Confidentiality Agreement.
6.3 Notices of Certain Events. The Purchaser shall promptly notify
the Sellers of:
(a) any notice or other communication from any Government Body
in connection with the transactions contemplated by this Agreement; and
(b) any Legal Proceedings commenced or, to the best of its knowledge
threatened against, relating to or involving or otherwise affecting the
Purchaser that, if pending on the date of this Agreement, would have been
38
required to have been disclosed pursuant to Section 4.4 hereof or that relate to
the consummation of the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS RELATING TO EMPLOYMENT AND EMPLOYEE MATTERS
7.1 Employment and Employee Benefit Matters.
(a) The Purchaser shall, and shall cause its Subsidiaries following
the Closing Date to:
(i) honor and provide for payment of all
obligations and benefits under all Employee Benefit Plans
and Benefit Arrangements in accordance with their terms;
(ii) provide employee benefits which are
substantially comparable in the aggregate to the level of employee benefits
provided by the SMR Companies under the Employee Benefit Plans and Benefit
Arrangements in effect as of the date hereof for the benefit of employees or
former employees who are or had been employees of any of the SMR Companies on or
before the Closing Date ("Covered Employees") until February 28, 1999;
(iii) maintain in effect until February 28, 1999 for the
benefit of the Covered Employees the severance plans and practices of the SMR
Companies in effect as of the date hereof;
(iv) provide until February 28, 1999 for the
benefit of Covered Employees who remain in the employ of the Purchaser or any of
its affiliates employee compensation that is no less than the compensation
(including base pay and incentive compensation) provided by the SMR Companies
under the compensation arrangements in effect as of the date hereof; and
(v) provide healthcare benefits to the former owners of FSI
in accordance with the terms set forth on Schedule 7.1(a).
(b) If Covered Employees are included in any benefit plan (including
without limitation, provision for vacation) of the Purchaser or its
Subsidiaries, the Purchaser agrees that the Covered Employees shall receive
39
credit as employees of the SMR Companies for service prior to the Closing Date
with the SMR Companies to the same extent such service was counted under similar
Employee Benefit Plans for purposes of eligibility, vesting, eligibility for
retirement and, with respect to vacation, disability and severance, benefit
accrual. If Covered Employees are included in any medical, dental or health plan
other than the plan or plans they participated in on the Closing Date, the
Purchaser agrees that any such plans shall not include pre-existing condition
exclusions, except to the extent such exclusions were applicable under the
similar Employee Benefit Plan or Benefit Arrangement on the date hereof, and
shall provide credit for any deductibles and co-payments applied or made with
respect to each Covered Employee in the calendar year of the change.
(c) The parties acknowledge that nothing herein shall be deemed to
be a commitment on the part of the Purchaser to provide employment to any person
for any period of time and, except as otherwise provided in this Section 7.1,
nothing herein shall be deemed to prevent the Purchaser from amending or
terminating any Employee Benefit Plan or Benefit Arrangement in accordance with
its terms.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
The obligation of the Purchaser to consummate the purchase of the
Securities on the Closing Date is, subject to the satisfaction of each of the
following conditions:
8.1 Representations, Warranties and Covenants. (a) Each of the
representations and warranties of the Sellers contained herein and in each of
the Seller's Documents shall be true and correct in all material respects when
made and shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect as though the same had been made on
and as of the Closing Date, it being understood that to the extent that such
representations and warranties were made as of a specified date the same shall
continue on the Closing Date to be true and correct in all material respects as
of the specified date (provided, however, that if any portion of any
representation or warranty is already qualified by materiality, for purposes of
determining whether this Section 8.1(a) has been satisfied with respect to such
40
portion of such representation or warranty, such portion of such representation
or warranty as so qualified must be true and correct in all respects).
(b) Each Seller shall have performed and complied in all material
respects with the covenants and provisions of this Agreement and in each of the
Seller's Documents required to be performed or complied with by them at or prior
to the Closing Date.
8.2 Deliveries by the Sellers to the Purchaser. At the Closing, each
Seller shall deliver, or shall cause to be delivered, to the Purchaser the
following:
(a) the certificates representing the Shares owned by such Seller,
duly endorsed or accompanied by duly executed stock powers to the Purchaser,
together with such additional documents and instruments reasonably requested by
the Purchaser in connection with the sale, transfer, assignment and conveyance
of such Shares by such Seller to the Purchaser;
(b) appropriate instruments of sale, transfer, assignment and
conveyance with respect to the Partnership Interests and the LLC Interests owned
by such Seller, in form and substance reasonably acceptable to the Purchaser,
together with such additional documents and instruments reasonably requested by
the Purchaser in connection with the sale, transfer, assignment and conveyance
of such Partnership Interests and LLC Interests by such Seller to the Purchaser;
(c) a certificate dated as of the Closing Date, certifying as to the
fulfillment of the conditions set forth in Section 8.1 hereof;
(d) an affidavit, in a form reasonably satisfactory to the
Purchaser, of such Seller stating under penalties of perjury such Seller's
United States taxpayer identification number and that such Seller is not a
foreign person within the meaning of Section 1445(b)(2) of the Code;
(e) a good standing certificate for each of the SMR Companies (to
the extent applicable) from the Secretary of State of the State of its
incorporation or formation dated the Closing Date;
41
(f) a Registration and Transfer Agreement, dated the Closing Date,
substantially in the form attached hereto as Exhibit A (the "Registration Rights
Agreement") executed by such Seller;
(g) the Escrow Agreement, dated the Closing Date, executed by such
Seller, together with any counterparts signed by the Escrow Agent and blank
stock powers executed by such Seller with respect to the Purchaser Common Stock
and Purchaser Preferred Stock to be held in escrow;
(h) a Standstill and Noncompete Agreement, dated the Closing Date,
executed by such Seller, substantially in the form attached hereto as Exhibit D;
(i) a Share Disposition Agreement, dated the Closing Date,
substantially in the form attached hereto as Exhibit E (the "Share Disposition
Agreement"), executed by such Seller; and
(j) resignations, dated the Closing Date, signed by the Sellers
relating to their positions as directors, officers and managers of the SMR
Companies.
8.3 ESOP Shares. On or before the Closing Date, the ESOP Shares
shall have been purchased by the Purchaser pursuant to the ESOP Purchase
Agreement.
8.4 No Prohibition. No Law or Order of any court or administrative
agency shall be in effect which prohibits the Purchaser or any Seller from
consummating the transactions contemplated hereby.
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligation of each Seller to consummate the sale, transfer and
assignment to the Purchaser of the Securities owned by such Seller on the
Closing Date is, subject to the satisfaction of each of the following
conditions:
9.1 Representations, Warranties and Covenants. (a) Each of the
representations and warranties of the Purchaser contained herein and in the
Purchaser Documents
42
shall be true and correct in all material respects when made and shall be true
and correct in all material respects as of the Closing Date with the same force
and effect as though the same had been made on and as of the Closing Date, it
being understood that to the extent that such representations and warranties
were made as of a specified date the same shall continue on the Closing Date to
be true and correct in all material respects as of the specified date (provided,
however, that if any portion of any representation or warranty is already
qualified by materiality, for purposes of determining whether this Section
8.1(a) has been satisfied with respect to such portion of such representation or
warranty, such portion of such representation or warranty as so qualified must
be true and correct in all respects).
(b) The Purchaser shall have performed and complied in all material
respects with the covenants and provisions in this Agreement and in the
Purchaser Documents required herein to be performed or complied with by it at or
prior to the Closing Date.
9.2 Deliveries by the Purchaser to the Sellers. At the Closing, the
Purchaser shall deliver to each Seller the following:
(a) a certificate or certificates representing the Purchaser Common
Stock and Purchaser Preferred Stock to be delivered to such Seller pursuant to
Section 1.2 hereof, registered in the name of such Seller;
(b) the Cash Payment, if any, to be made to such Seller pursuant to
Section 1.2 hereof;
(c) a certificate of the Purchaser, dated as of the Closing Date and
signed by an executive officer of the Purchaser, certifying as to the
fulfillment of the conditions set forth in Section 9.1 hereof;
(d) the Registration Rights Agreement, executed
by the Purchaser;
(e) the executed Letter of Credit;
(f) the Escrow Agreement, dated the Closing
Date, duly executed by the Purchaser;
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(g) the Share Disposition Agreement, duly executed by the
Purchaser; and
(h) a certificate of the Purchaser, dated the Closing Date and
signed by an executive officer of Purchaser, certifying that the deliveries
required to be made by the Purchaser to the Escrow Agent have been made.
9.3 No Prohibition. No Law or Order of any court or administrative
agency shall be in effect which prohibits the Purchaser or any Seller from
consummating the transactions contemplated hereby.
ARTICLE X
ADDITIONAL POST-CLOSING COVENANTS
10.1 Further Assurances. From time to time after the Closing Date,
each of the Sellers shall, at the Purchaser's sole cost and expense, at the
reasonable request of the Purchaser, execute and deliver such other and further
instruments of sale, assignment, transfer and conveyance and take such other and
further action as the Purchaser may reasonably request in order to vest in the
Purchaser and put the Purchaser in possession of the Securities.
10.2 Public Announcements. None of the Sellers, the Purchaser or
their respective affiliates shall make any public statement or disclosure with
respect to this Agreement and the transactions contemplated hereby to any third
party, including, without limitation, any Governmental Body, customers,
employees, shareholders and the financial community without the consent of the
other party hereto, except as may be required by Law or applicable NASD rule.
10.3 Books and Records; Personnel. For a period of six years after
the Closing Date (or such longer period as may be required by any Governmental
Body or ongoing Legal Proceeding):
(a) Neither any SMR Company nor the Purchaser shall dispose of or
destroy any of the business records and files of the SMR Companies. If any SMR
Company or the Purchaser wishes to dispose of or destroy such records and files
after that time, it shall first give 30 days' prior written notice to the
Sellers and each of the Sellers shall have the right, at his option and expense,
upon prior
44
written notice to the Purchaser within such 30-day period, to take possession of
the records and files within 60 days after the date of the SMR Company's or the
Purchaser's notice to the Sellers.
(b) The SMR Companies and the Purchaser shall allow each of the
Sellers and his representatives access to all business records and files of the
SMR Companies for the period prior to the Closing Date, during regular business
hours and upon reasonable notice at the Company's principal place of business or
at any location where such records are stored, and each of the Sellers shall
have the right, at his own expense, to make copies of any such records and
files; provided, however, that any such access or copying shall be had or done
in such a manner so as not to interfere in any material respect with the normal
conduct of business operations.
(c) The Company shall make available to each of the Sellers, upon
written request and at such Seller's expense, the Company's personnel to assist
such Seller in locating and obtaining the above-referenced records and files
maintained by SMR Companies.
10.4 Transitional Assistance. For a period commencing on the Closing
Date and ending six months thereafter, each Seller shall be available at the
reasonable request of Purchaser to respond to inquiries and otherwise assist the
Purchaser with respect to transitional matters. No Seller shall be obligated to
spend more than 100 hours of his time regarding such matters without
compensation. The Purchaser shall promptly reimburse all out-of-pocket expenses
incurred by each Seller with respect to the matters set forth in this Section
10.4.
ARTICLE XI
INDEMNIFICATION AND RELATED MATTERS
11.1 Survival of Representations, Warranties. Except for the
representations and warranties set forth in (i) Sections 3.3(f) and 3.11 which
shall survive until the applicable statute of limitations has expired plus, with
respect to Section 3.11 only, 60 days thereafter and (ii) Section 3.15, which
shall survive until the second anniversary of the Closing Date, the
representations and warranties of the parties contained in this Agreement shall
survive until December 31, 1999. Any covenant or other
45
agreement herein shall survive the Closing hereunder indefinitely or for such
lesser period of time as may be specified therein. Any matter as to which a
claim has been asserted by formal notice pursuant to Section 11.4 and within the
time limitation set forth in this Section 11.1 that is pending or unresolved at
the end of such limitation period shall continue to be covered by this Article
XI notwithstanding the expiration date set forth in this Section 11.1, until
such matter is finally terminated or otherwise resolved by the parties under
this Agreement or by a court of competent jurisdiction and any amounts payable
hereunder are finally determined and paid.
11.2 Obligations of the Sellers. From and after the Closing, each
Seller, jointly and severally, agrees to indemnify, defend and hold harmless the
Purchaser, its affiliates (including after the Closing, each SMR Company), and
their successors and assigns, and the officers, directors, employees and agents
of the Purchaser, its affiliates and their successors and assigns (each a
"Purchaser Indemnified Party") from and against any and all Losses which any
Purchaser Indemnified Party may suffer, incur or sustain arising out of,
attributable to, or resulting from: (a) any breach or nonperformance of any of
the covenants or other agreements made by such Seller in Article V of this
Agreement and (b) any inaccuracy in or breach of any of the representations or
warranties of such Seller contained in Article III of this Agreement; (c) (i)
any solid, liquid or gaseous materials from manufacturing operations which on or
prior to the Closing Date were present at, on or under, or migrated or
transported to or from the SMR Properties (or any property formerly owned or
used by any SMR Company or the Business) in violation of Environmental Law, (ii)
any noncompliance with or violation of any applicable Environmental Law or
Environmental Permit occurring on or prior to the Closing Date, and (iii) the
environmental matters set forth on Schedule 11.2(c) hereof (provided that the
Purchaser Indemnified Parties first exhaust all available remedies against the
former owner identified on such Schedule 11.2(c) before proceeding against
Sellers in respect of Section 11.2(c)(i), (ii) or (iii)); provided, however,
that no such indemnification shall be required under this clause(c) unless (i) a
written notice or claim shall have been received by a Purchaser Indemnified
Party from a Governmental Body or third party and not resulting from any actions
taken by the Purchaser Indemnified Parties other than Phase II and other
environmental testing as advised by the Purchaser's
46
environmental consultants and any reporting obligations to any Governmental Body
resulting therefrom and the Seller shall have received notice of such written
notice or claim on or prior to the second anniversary of the Closing Date, and
provided, further, that the Sellers shall have the right, but not the obligation
to control and manage any required remedial action and shall only be responsible
to the extent necessary to meet the least stringent, most cost effective
standard required by applicable Environmental Laws and consistent with the SMR
Properties' use at the time of Closing, (d) any claim brought against the
Purchaser or any other Purchaser Indemnified Party in connection with the ESOP
Purchase Agreement alleging that the consideration paid to the FSI ESOP (or the
beneficiaries thereof) was unfair or inadequate or that the FSI ESOP was
otherwise damaged in connection with the ESOP Purchase Agreement (provided that
no indemnification shall be provided in connection with any claim that the
Purchaser has breached the ESOP Purchase Agreement), and (e) any Taxes imposed
on any of the SMR Companies with respect to taxable periods ending on or before
the Closing Date or, with respect to any taxable period beginning before and
ending after the Closing Date, the portion of such period ending on the Closing
Date (determined in accordance with Section 13.2(a)(ii)), in each case other
than (i) by reason of the Election (subject to Section 13.1(c)(ii) and the last
sentence of Section 13.1(g)) or (ii) by reason of any action (other than the
Election) taken by any SMR Company after the Closing or by or at the direction
of the Purchaser (including without limitation the filing of an amended Tax
Return for an SMR Company for a period (or portion thereof) ending on or prior
to the Closing Date without the consent of the Sellers).
11.3 Obligations of Purchaser. From and after the Closing, Purchaser
agrees to indemnify, defend and hold harmless each Seller from and against any
and all Losses which any of them may suffer, incur, or sustain arising out of,
attributable to, or resulting from: (a) any breach or nonperformance of any of
the covenants or other agreements made by Purchaser in Article VI of this
Agreement; (b) any inaccuracy in or breach of any of the representations and
warranties of Purchaser contained in Article IV of this Agreement; (c) any
obligations of any of the SMR Companies to the FSI ESOP arising prior to the
Closing Date (including for the Department of Labor settlement described on
Schedule 11.3 hereof provided that the accruals for such settlement are
reflected on the Closing Balance Sheet), other than for the matters described in
Section 11.2(d); (d) any claims by any employees or former employees of the SMR
Companies, including, without limitation, relating to their employment with the
SMR Companies, termination of
47
employment or change in benefits or compensation, except for matters which would
constitute a breach of the representations and warranties made by Seller in
Section 3.12; or (e) any actions taken as a director, officer, partner or
manager of any of the SMR Companies prior to the Closing Date to the maximum
extent permitted for directors, officers, partners or managers under applicable
state corporate, partnership and limited liability company laws, except for
matters for which Purchaser is entitled to indemnification under Section 11.2;
or (f) any Taxes imposed on any of the Sellers or SMR Companies with respect to
taxable periods ending on or before the Closing Date or, with respect to any
taxable period beginning before and ending after the Closing Date, the portion
of such period ending on the Closing Date (determined in accordance with Section
13.2(a)(ii)) by reason of (i) the Election (subject to Section 13.1(c)(iii) and
the last sentence of Section 13.1(g)) or (ii) any action taken by any SMR
Company (other than the Election) after the Closing or by or at the direction of
the Purchaser (including without limitation the filing of an amended Tax Return
for an SMR Company in respect of a period (or portion thereof) ending on or
prior to the Closing Date without the consent of the Sellers).
11.4 Procedure. (a) Notice of Third Party Claims. Any party entitled
to and seeking indemnification pursuant to this Article XI for any Loss or
potential Loss (an "Indemnified Party") arising from a claim asserted by a third
party against the Indemnified Party (a "Third Party Claim") shall give written
notice to the party required to indemnify the Indemnified Party pursuant to this
Article XI (the "Indemnifying Party") specifying in detail the source of the
Loss or potential Loss under Section 11.2 or 11.3, as the case may be. Written
notice to the Indemnifying Party of the existence of a Third Party Claim shall
be given by the Indemnified Party promptly after notice of the potential claim;
provided, however, that the Indemnified Party shall not be foreclosed from
seeking indemnification pursuant to this Article XI by any failure to provide
such prompt notice of the existence of a Third Party Claim to the Indemnifying
Party unless the Indemnifying Party has been damaged or prejudiced as a result
of such delay. In the case of a Tax Claim, the procedures set forth in Section
13.2 shall apply in lieu of the procedures set forth in this Section 11.4.
(b) Defense. Except as otherwise provided herein, the
Indemnifying Party may elect to pay, compromise
48
or defend (with the expenses incurred by the Indemnifying Party in connection
therewith for its own account) by such Indemnifying Party's own counsel (which
counsel shall be reasonably satisfactory to the Indemnified Party), any Third
Party Claim. If the Indemnifying Party elects to compromise or defend such Third
Party Claim, it shall, within 30 days after receiving notice of the Third Party
Claim, notify the Indemnified Party of its intent to do so, and the Indemnified
Party shall cooperate, with the expense of the Indemnified Party being part of
the Loss for which the Indemnified Party is entitled to indemnification pursuant
to the terms of this Agreement, in the compromise of, or defense against, such
Third Party Claim. If the Indemnifying Party elects not to compromise or defend
against the Third Party Claim, or fails to notify the Indemnified Party of its
election to do so as herein provided, or otherwise abandons the defense of such
Third Party Claim, (i) the Indemnified Party may pay (without prejudice of any
of its rights as against the Indemnifying Party), compromise or defend such
Third Party Claim (until such defense is assumed by the Indemnifying Party) and
(ii) the costs and expenses of the Indemnified Party incurred in connection
therewith shall be indemnifiable by the Indemnifying Party pursuant to the terms
of this Agreement. However, if within 30 days of receiving a notification from
the Indemnifying Party that the Indemnifying Party does not elect to defend a
Third Party Claim, the Indemnified Party fails to notify the Indemnifying Party
that the Indemnified Party is electing to pay, compromise or defend the claim or
notifies the Indemnifying Party that it does not elect to pay, compromise or
defend the claim, then the Indemnifying Party may elect to pay, compromise or
defend the claim by such Indemnifying Party's own counsel (which counsel shall
be reasonably satisfactory to the Indemnified Party), with the expenses incurred
by the Indemnifying Party for the account of the Indemnified Party but part of
the Loss for which the Indemnified Party is entitled to indemnification pursuant
to the term by this Agreement. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnified Party may settle or compromise any claim
over the objection of the other; provided, however, that (i) consent to
settlement or compromise shall not be unreasonably withheld by the Indemnified
Party and (ii) if the sole settlement relief payable to a third party in respect
of such Third Party Claim is monetary damages that are paid in full by the
Indemnifying Party, the Indemnifying Party may settle such
49
claim without the consent of the Indemnified Party. In any event, except as
otherwise provided herein, the Indemnified Party and the Indemnifying Party may
each participate, at its own expense, in the defense of such Third Party Claim.
If the Indemnifying Party chooses to defend any claim, the Indemnified Party
shall make available to the Indemnifying Party any personnel or any books,
records or other documents within its control that are reasonably necessary or
appropriate for such defense, subject to the receipt of appropriate
confidentiality agreements.
11.5 Miscellaneous. The procedures set forth in Section 11.4 above
shall apply solely with respect to Third Party Claims and shall not be deemed to
apply to, or otherwise affect or limit, an Indemnified Party's rights under this
Agreement with respect to any claim other than a Third Party Claim.
11.6 Notice of Non-Third Party Claims. Any Indemnified Party seeking
indemnification for any Loss or potential Loss arising from a claim asserted by
any party to this Agreement against the Indemnifying Party (a "Non-Third Party
Claim") shall give written notice to the Indemnifying Party specifying in detail
the source of the Loss or potential Loss under Section 11.2 or 11.3, as the case
may be. Written notice to the Indemnifying Party of the existence of a Non-Third
Party Claim shall be given by the Indemnified Party promptly after the
Indemnified Party becomes aware of the potential claim; provided that the
failure to provide such notice shall not affect the other party's
indemnification or other obligations hereunder, except to the extent that such
party has been prejudiced by such lack of notice.
11.7 Certain Limitations. The Purchaser shall not have any right to
seek indemnification under this Agreement against any Seller in respect of any
claim of less than $5,000 on an individual basis, or in respect of allowable
claims until Losses of such party exceed $500,000 in the aggregate (the
"Indemnification Threshold"), after which time only the aggregate amount of such
Losses in excess of the Indemnification Threshold shall be recoverable in
accordance with the terms hereof; provided, however, that notwithstanding such
limitation but subject to the limitations of Section 11.8 hereof, the Purchaser
shall have the right to seek indemnification under Section 11.2(d) for all
Losses in respect of the subject matter thereof in excess of $250,000. Losses
shall be first recoverable from
50
the property held by the escrow agents pursuant to the Escrow Agreement and the
escrow agreement executed by the ESOP pursuant to the ESOP Purchase Agreement
(the "ESOP Escrow Agreement"). In respect of matters for which indemnification
is provided both by the Sellers under this Agreement and the ESOP under the ESOP
Purchase Agreement, the Purchaser simultaneously shall seek recovery against the
Sellers and the ESOP with 84.5% claimed under this Agreement and 15.5% claimed
under the ESOP Purchase Agreement. Thereafter, each Seller shall be jointly and
severally liable for the Losses not satisfied pursuant to the preceding
sentence.
11.8 Maximum Indemnification. No party shall have any right to
obtain an indemnification payment under this Agreement to the extent amounts
received by such party and its Affiliates and the successors and assigns of such
party and its Affiliates as indemnification payments hereunder and from the
Escrow Agreement equal or exceed 15% of the Purchase Price.
11.9 Subrogation. The rights of any Indemnifying Party shall be
subrogated to any right of action which the Indemnified Party may have against
any other person with respect to any matter giving rise to a claim for
indemnification hereunder.
11.10 Adjustments to Indemnification Obligations. The amount of any
Loss for which indemnification is provided under Sections 11.2 or 11.3 (the
"Specified Sections") shall be net of (i) any accruals or reserves created
specifically in respect thereof on the Closing Balance Sheet, (ii) any amounts
recovered by the Indemnified Party pursuant to any indemnification by or
indemnification agreement with any third party, and (iii) any insurance proceeds
or other cash receipts or sources of reimbursement received from a third party
as an offset against such Loss (each such person named above, a "Collateral
Source"), and (iv) an amount equal to the amount of the Tax benefit, if any,
actually realized by the Indemnified Party or any affiliate thereof. To the
extent that an Indemnified Party or an affiliate thereof actually realizes Tax
benefits subsequent to the date of computation and payment of an indemnification
payment due hereunder to such Indemnified Party, the Indemnified Party shall pay
to the Indemnifying Party the amount of such Tax Benefits as and when they are
actually realized by the Indemnified Party or such affiliate. To the extent that
a taxing authority shall require the amount of any
51
indemnification payment to be included in income hereunder, such amount shall be
taken into account in determining the Tax benefit derived by the Indemnified
Party or an affiliate thereof; provided, however, that the Seller shall not be
required to make any indemnification payment to a Purchaser Indemnified Party in
respect of a Loss which shall exceed the amount of such Loss, as computed in
accordance with this Agreement but prior to reduction thereof by Section
11.10(iv). The Indemnified Party shall provide to the Indemnifying Party a
schedule setting forth in reasonable detail the computation of the amount of Tax
benefits actually realized which is attributable to a Loss (whether such Tax
benefits are actually realized prior or subsequent to the date of the
indemnification payment to the Indemnified Party hereunder) and the reason, if
any, why such Loss does not produce a current Tax benefit and the basis, if any,
for the taxation of an indemnification payment received hereunder. In the event
that the Indemnifying Party objects to the computation of Tax benefits actually
realized by the Indemnified Party or an affiliate thereof, the parties shall
seek to resolve such disagreement in good faith; if the parties are unable to
resolve such disagreement, the parties shall submit the matter to the Accounting
Referee, whose determination shall be final and binding and whose fees shall be
borne 50% by the Indemnifying Party and 50% by the Indemnified Party. The
Indemnifying Party may require an Indemnified Party to assign the rights to seek
recovery pursuant to the first sentence of this Section 11.10; provided, that
the Indemnifying Party will then be responsible for pursuing such claim at its
own expense. If the amount to be netted hereunder from any payment required
under Sections 11.2 or 11.3 is determined after payment by the Indemnifying
Party of any amount otherwise required to be paid to an Indemnified Party to
this Article XI, the Indemnified Party shall repay to the Indemnifying Party,
promptly after such determination, any amount that the Indemnifying Party would
not have had to pay pursuant to this Article XI had such determination been made
at the time of such payment.
11.11 Treatment of Indemnification Payments. Any payment made
pursuant to the indemnification obligations arising under this Agreement shall
be treated as an adjustment to the Purchase Price.
11.12 Exclusive Remedy. To the extent not prohibited by Law and
except as provided by Article XIII hereof and except for the granting of
injunctive relief or other similar equitable remedies, this Article XI shall
provide the sole and exclusive
52
remedy for any and all Losses resulting from any breach of representation and
warranty or covenant or resulting from any other provision of this Agreement,
including those asserted by any party hereto, Governmental Body, third party, or
former or present employee and, to this effect, the Purchaser on behalf of
itself and the Purchaser Indemnified Parties hereby waives any claims, rights,
demands or causes of action that the Purchaser Indemnified Parties have or may
have under Environmental Laws against the Sellers other than those specifically
provided for in Section 11.2 of this Agreement.
11.13 No Consequential Damages. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED HEREIN, NO PARTY TO THIS AGREEMENT SHALL BE LIABLE TO OR
OTHERWISE RESPONSIBLE TO ANY OTHER PARTY HERETO OR ANY AFFILIATE OF ANY OTHER
PARTY HERETO FOR CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OR FOR DIMINUTION
IN VALUE OR LOST PROFITS THAT ARISE OUT OF OR RELATE TO THIS AGREEMENT OR THE
PERFORMANCE OR BREACH THEREOF.
ARTICLE XII
TERMINATION
12.1 Termination. This Agreement may be terminated:
(a) by the written agreement of the Purchaser and each of the
Sellers;
(b) by the Purchaser or the Sellers if there shall be in effect a
non-appealable order of a court of competent jurisdiction permanently
prohibiting the consummation of the transactions contemplated hereby; and
(c) by the Sellers or the Purchaser if the Closing shall not have
occurred on or before October 31, 1998.
Notwithstanding anything else contained in this Agreement, the right
to terminate this Agreement under this Section 12.1 shall not be available to
any party (i) that is in material breach of its obligations hereunder or (ii)
whose failure to fulfill its obligations or to comply with its covenants under
this Agreement in all material respects has been the cause of, or resulted in,
the failure
53
to satisfy any condition to the obligations of either party hereunder.
12.2 Liabilities After Termination. Upon any termination of this
Agreement pursuant to Section 12.1 hereof, no party hereto shall thereafter have
any further liability or obligation hereunder other than the Purchaser's
obligations pursuant to Section 6.2 hereof, but no such termination shall
relieve any party hereto of any liability to the other parties hereto for any
breach of this Agreement prior to the date of such termination.
ARTICLE XIII
TAX MATTERS
13.1 Section 338(h)(10) Election; Tax Indemnity.
(a) The Purchaser may elect, at the Purchaser's sole option, to file
an election under Section 338(h)(10) of the Code and under any comparable
provisions of state or local law with respect to the purchase of the Shares (the
"Election"). The Sellers shall join, at the request of the Purchaser, in the
Election. If the Election is made, the Purchase Price shall be increased by the
Election Tax Cost (as determined in accordance with Section 13.1(c) hereof) and
the Sellers and the Purchaser shall report, in connection with the determination
of income, franchise or other Taxes measured by net income, the transactions
being undertaken pursuant to this Agreement in a manner consistent with the
Election and with the computation of the Election Tax Cost.
(b) The Purchaser shall notify the Sellers in writing of its
intention to file the Election no later than the earlier of (i) one hundred
twenty (120) days after the Closing Date or (ii) fifteen (15) days after Final
Net Worth and Final Debt and Related Costs are determined (the "Election
Notice").
(c) The term "Election Tax Cost" shall mean an amount which, net of
all federal, state and local Taxes imposed on the Sellers in respect of the
receipt thereof by the Sellers, would be equal in amount to the excess of (A)
the aggregate federal, state and local Tax liability incurred by the Sellers as
a consequence of the transactions contemplated hereby (giving effect to the
Election and the
54
allocation of the Purchase Price in accordance with Section 1.4 hereof), over
(B) the aggregate federal, state and local Tax liability that would have been
incurred by the Sellers on the sale of the Securities if the Election had not
been made (and assuming that no portion of the Purchase Price were allocable to
a covenant not to compete); provided, however, that (i) the Election Tax Cost
shall not exceed 200% of the estimate of the Election Tax Cost shown on Schedule
13.1(c) attached hereto, (ii) the amount excluded from the Sellers'
indemnification obligation under Section 11.2(e)(i), when aggregated with the
Election Tax Cost, shall not exceed 200% of the estimate of this Election Tax
Cost shown on Schedule 13.1(c) hereto, and (iii) the amount of Purchaser's
indemnification obligation under Section 11.3(f)(i), when aggregated with the
Election Tax Cost, shall not exceed 200% of the estimate of the Election Tax
Cost shown on Schedule 13.1(c) hereto.
(d) Within 25 days after Sellers' receipt of the Election Notice,
the Sellers shall provide to the Purchaser the computation of the Election Tax
Cost computed as of the Closing Date (which computation shall set forth only
such Tax information as relates to the transactions contemplated hereby). Unless
the Purchaser objects in writing to the Sellers' computation of the Election Tax
Cost, within 20 days after receipt thereof (specifying the reasons therefor in
reasonable detail), such computations shall be deemed final. If the Purchaser
does so object, the Purchaser shall pay to the Sellers (in accordance with the
principles set forth in subparagraph (e) below) the portion of the Election Tax
Cost that the Purchaser does not dispute ("Undisputed Amount") at least three
days prior to the due date of the Sellers' federal income Tax Return for the Tax
period that includes the Closing Date and the Purchaser and the Sellers will
negotiate in good faith to resolve all disputed items. If the Purchaser and the
Sellers are unable to resolve all disputed items within ten days of Sellers'
receipt of Purchaser's written objection, such disputed items will be submitted
to the Accounting Referee for resolution. The Purchaser and the Sellers will
cooperate with the Accounting Referee to resolve the remaining disputed items
within sixty business days after such disputed items are submitted to the
Accounting Referee. The determination of the Accounting Referee will be deemed
final. In the event it is determined that the Purchaser owes the Sellers any
portion of the disputed amount, the Purchaser shall bear the portion of the
costs of the Accounting Referee determined by multiplying such costs by a
55
fraction, the numerator of which is the additional amount that such Accounting
Referee determines that the Purchaser owes the Sellers and the denominator of
which is the disputed amount, and the Purchaser shall pay to the Sellers such
additional amount plus interest thereon at the "overpayment rate", as defined in
Section 6621(a) of the Code, from the due date of the Sellers' federal income
Tax Return to the date of payment. The Sellers shall bear all costs of the
Accounting Referee that are not paid by the Purchaser pursuant to the preceding
sentence.
(e) Upon final determination of the Election Tax Cost, the Purchaser
shall pay to each Seller an amount equal to the product of (i) the excess of the
Election Tax Cost over the amount thereof previously paid to the Sellers
pursuant to Section 13.1(d) and (ii) the percentage set forth opposite the name
of such Seller on Schedule 1.1 hereto.
(f) The Purchaser shall be responsible for the preparation and
filing of all forms and documents required in connection with the Election. In
connection with the Election Notice, the Purchaser shall provide the Sellers
with copies of (i) Form 8023 as reasonably agreed to by the parties, (ii) all
attachments required to be filed therewith pursuant to applicable Treasury
Regulations, and (iii) any comparable forms and attachments with respect to any
applicable state or local elections being made pursuant to the Election. The
Sellers shall execute and deliver to the Purchaser within 60 days of receipt of
the Election Notice such documents or forms as are required by any Tax laws to
complete properly the Election and to jointly file such Election on a timely
basis; provided, however, that Sellers shall not be required to deliver such
documents or forms or file such Election prior to payment of the Election Tax
Cost in the manner provided by Section 13.1(e) hereof; provided, further,
however, that if a good faith dispute concerning the amount of the Election Tax
Cost is pending, and the Purchaser shall have deposited with an escrow agent
acceptable to the Sellers, pursuant to an escrow agreement acceptable to the
Sellers, the disputed portion of the Election Tax Cost, the Sellers shall
deliver such forms and file such Election. The Sellers and the Purchaser shall
cooperate fully with each other and make available to each other such Tax data
and other information as may be reasonably required by the Sellers or the
Purchaser in order to timely file the Election and any other required statements
or schedules and to compute the amount of the
56
Election Tax Cost. The Sellers shall promptly execute and deliver to the
Purchaser any amendments subsequent to the filing of the Election to Form 8023
(and any comparable state and local forms) and attachments which are required to
be filed under applicable law and are reasonably agreed to by the parties.
(g) Purchaser shall indemnify the Sellers, on an after-tax basis,
against any federal, state or local Tax liability which is incurred by the
Sellers by reason of consummating the transactions contemplated hereby
(including by reason of the Election or the allocation of any portion of the
Purchase Price to a covenant not to compete, but not by reason of an adjustment
required by a taxing authority to the amount of the Purchase Price allocable to
a covenant not to compete), to the extent that the amount of such Tax liability
exceeds the Tax liability that the Sellers would have incurred were they to have
(a) sold the Shares, the Partnership Interests and the LLC Interests without the
making of the Election or the allocation of any consideration to a covenant not
to compete and (b) received as consideration therefor at the Closing Date an
amount of cash equal to the Purchase Price (as adjusted in accordance with
Section 1.3 and increased for interest in accordance with Section 1.2 hereof).
Notwithstanding anything to the contrary set forth herein, the Purchaser shall
not be required to indemnify the Sellers for the increase in the Election Tax
Cost (if any), or any increase in the Tax liability incurred by an SMR Company
by reason of the Election, that results from the breach of a representation set
forth in Section 3.11.
13.2 Tax Returns; Audits. (a) (i) The Sellers shall be responsible
for preparing or causing to be prepared, at the appropriate SMR Company's
expense, the Company's federal income tax return on Form 1120S and comparable
state and local income and franchise tax returns (each, an "S Period Return"),
for the Company's taxable year ending on the Closing Date (collectively, the
"Final S Period Tax Returns") or prior to the Closing Date and all other Income
Tax Returns of the SMR Companies for the taxable periods ending on or prior to
the Closing Date. Such Tax Returns shall be prepared in a manner consistent with
prior practice unless otherwise required by applicable Tax laws. The Purchaser
shall cause the Company to cooperate in the preparation and filing of such Tax
Returns
57
(including providing the Sellers with all information reasonably requested by
the Sellers in connection with the preparation of such Tax Returns). The Sellers
shall be responsible for preparing the Tax Returns of SMR Developers and SMR
Associates in respect of taxable periods ending on or before the Closing Date in
accordance with the principles set forth in this Section 13.2(a). The Sellers
shall provide the Purchaser with a copy of such Tax Returns together with the
schedules thereto, and a statement setting forth the amount of Tax shown due on
such Tax Return for which the Purchaser is liable, at least 10 days prior to the
due date (including any extensions thereof) for the filing of such Final S
Period Tax Returns, and the Purchaser shall have the right to review such Final
S Period Tax Returns prior to the filing of such Final S Period Tax Returns. The
Purchaser shall cause such Tax Returns to be signed by the appropriate SMR
Company so that they may be timely filed by or at the direction of the Sellers.
The Purchaser shall cause any amount of Tax shown as due from an SMR Company on
such Tax Return to be paid, subject to indemnification as provided in Article
11.
(ii) The Sellers and the Purchaser will, to the extent permitted by
applicable Law, elect with the relevant Taxing authority to close the taxable
period of each SMR Company on the Closing Date. In any case where applicable Law
does not permit an SMR Company to close its taxable year on the Closing Date,
then Taxes, if any, attributable to the taxable period of the SMR Company
beginning on or before and ending after the Closing Date shall be allocated
between (A) the period up to and including the Closing Date, and (B) the period
subsequent to the Closing Date by means of a closing of the books and records of
each of the SMR Companies as of the close of business on the Closing Date.
(b) (i) Except as provided in Section 13.2(a), following the
Closing, Purchaser shall be responsible for preparing or causing to be prepared
all Tax Returns required to be filed by the SMR Companies after the Closing
Date.
(ii) With respect to any Tax Return required to be filed by the
Purchaser for a taxable period of an SMR Company beginning on or before the
Closing Date, (A) the Purchaser shall prepare (or cause to be prepared) such Tax
Returns in a manner consistent with the prior practice of the respective SMR
Company unless otherwise required by applicable Tax laws, and (B) the Purchaser
shall deliver, at
58
least twenty (20) business days prior to the due date for filing of such Tax
Return (including extensions), to the Sellers (1) a statement setting forth the
amount of Tax shown due on such Tax Return for which the Sellers are liable
pursuant to Section 11.2(e) hereof (the "Statement"), and (2) copies of such Tax
Return. The Sellers shall have the right to review and comment on such Tax
Return and the Statement prior to the filing of such Tax Return. The Sellers and
the Purchaser agree to consult and resolve in good faith any issue arising as a
result of the review of such Tax Return and the Statement and to mutually
consent to the filing as promptly as possible of such Tax Return. In the event
the parties are unable to resolve any dispute within ten (10) business days
following the delivery of such Tax Return and the Statement, the parties shall
jointly request the Accounting Referee to resolve any issue in dispute as
promptly as possible; provided, however, that the sole issue before the
Accounting Referee shall be whether the changes proposed by the Sellers are
reasonable. If the Accounting Referee is unable to make a determination with
respect to any disputed issue within five (5) business days prior to the due
date (including extensions) for the filing of the Tax Return in question, then
the Purchaser may file such Tax Return on the due date (including extensions)
therefor without such determination having been made and without the Sellers'
consent. Notwithstanding the filing of such Tax Return, the Accounting Referee
shall make a determination with respect to any disputed issue, and the amount of
Taxes for which Sellers are liable under Section 11.2(e) hereof shall be as
determined by the Accounting Referee. The fees and expenses of the Accounting
Referee shall be paid one-half by the Purchaser and one-half by the Sellers. The
Purchaser shall pay or cause to be paid all Taxes shown due on such Tax Return.
Not later than (A) three days before the due date for the payment of Taxes with
respect to such Tax Return or (B) in the event of a dispute, five business days
after notice to the Sellers of the resolution thereof, the Purchaser shall be
paid such amount in accordance with Section 11.7.
(c) In the event that, following the Closing Date, any Governmental
Body notifies the Purchaser or any of the SMR Companies or any affiliate thereof
of its intention to audit, assess, examine or otherwise review (collectively,
"Audit") an S Period Return of the Company or an SMR Subsidiary (or a Tax Return
of SMR Developers or SMR Associates) relating to a taxable period ending on or
before the Closing Date, the Purchaser shall promptly notify the
59
Sellers of the receipt of such notice. Upon receipt of notice of the Audit from
the Purchaser, the Sellers may, at the Sellers' option and sole expense, control
all further determinations with respect to the conduct of such Audit or any
administrative or judicial proceeding arising in respect thereof, including but
not limited to all negotiation and correspondence with such Governmental Body
and the compromise or settlement of such matter; provided, however, that if and
to the extent that the Audit involves an adjustment or issue which will produce
a Tax for which the Purchaser will be liable pursuant to Section 11.3(f), the
Purchaser shall be entitled to jointly control with the Sellers such adjustment
or issue, and neither the Sellers nor the Purchaser shall enter into a
settlement or closing or other agreement with respect to such issue or
adjustment without the consent of the other party, which consent shall not be
unreasonably withheld. The Purchaser shall cooperate and provide or cause the
Company to cooperate and provide the Sellers with access to such records and
personnel of the SMR Companies as the Sellers determine may be necessary in
connection with the conduct of such Audit or any administrative or judicial
proceeding in respect thereof. The Purchaser shall provide the Sellers with
copies of all correspondence, notices and other written materials received from
any Governmental Body.
(d)(i) Without prejudice to Sellers' rights under Section 13.2(c),
the Purchaser will promptly notify the Sellers in writing of the commencement of
any claim, Audit, or other proposed change or adjustment by any taxing authority
concerning any Tax covered by Section 11.2(e) hereof (a "Tax Claim"); provided,
however, that a Purchaser Indemnified Party shall not be foreclosed from seeking
indemnification pursuant to Article XI by any failure to provide such prompt
notice of the existence of a Tax Claim except to the extent that the Sellers
have been damaged or prejudiced as a result of such delay.
(ii) The Sellers shall have the right to represent any SMR Company's
interests in any Tax audit or administrative or court proceeding relating to
taxable periods of such SMR Company ending on or prior to the Closing Date and
to employ counsel of its choice at its expense; provided that (A) if the results
of such Tax audit or proceeding (other than a Tax audit or proceeding with
respect to any S Corporation Period or any Tax Return of SMR Associates or SMR
Developers for a period ending on or before the Closing Date) (i) involves an
issue that recurs
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for a taxable period of an SMR Company beginning after the Closing Date (whether
or not such subsequent taxable period is the subject of such Tax audit or
proceeding at such time), (ii) would be binding on the Purchaser or the SMR
Companies for any taxable period beginning after the Closing Date, and (iii)
would materially and detrimentally affect the Tax liability of the SMR Companies
for a taxable period beginning after the Closing Date, then the Sellers shall
not enter into a settlement or closing or other agreement with respect thereto
without the consent of the Purchaser, which consent shall not be unreasonably
withheld and (B) if the Tax Claim involves an adjustment or issue which will
produce a Tax for which the Purchaser will be liable pursuant to Section
11.3(f), the Purchaser shall be entitled to jointly control with the Sellers
such adjustment or issue in the Tax audit or proceeding, and neither the Sellers
nor the Purchaser shall enter into a settlement or closing or other agreement
with respect to such issue or adjustment without the consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that, in a
case described in clause (A) above, if the Purchaser shall refuse to consent to
any settlement, closing or other agreement that the Sellers propose to accept (a
"Proposed Settlement"), then (1) the Sellers' liability with respect to the
subject matter of the Proposed Settlement shall be limited to the amount that
such liability would have been if the Proposed Settlement had been accepted, and
(2) the Purchaser shall be responsible for all expenses incurred thereafter in
connection with the contest of such audit or proceeding except to the extent
that the final settlement imposes less liability on the Sellers than the
Proposed Settlement would have imposed. The Purchaser agrees that, to the extent
reasonably requested in writing by the Sellers, it will cause the SMR Companies
to take such requested actions in the defense against or compromise of any claim
in any such Tax audit or proceeding. The Sellers shall promptly notify the
Purchaser if it decides not to control the defense or settlement of any such Tax
audit or administrative or court proceeding and the Purchaser thereupon shall be
permitted to defend and settle such Tax audit or proceeding; provided, however,
that there shall be no settlement or closing or other agreement with respect
thereto without the consent of the Sellers (which consent shall not be
unreasonably withheld).
(iii) With respect to any taxable period of an SMR Company beginning
before and ending after the Closing Date, the Purchaser and the Sellers shall
jointly control the
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defense and settlement of any Tax audit or administrative or court proceeding
and each party shall cooperate with the other party at their own expense and
there shall be no settlement or closing or other agreement with respect thereto
without the consent of the other party, which consent will not be unreasonably
withheld.
(e) A claim for indemnity under Sections 11.2(e) or 11.3(f) may not
be made later than 60 days after the expiration of the applicable Tax statute of
limitations with respect to the relevant taxable period.
13.3 Cooperation and Exchange of Information. The Sellers and the
Purchaser will provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Tax Return,
amended Tax Return or claim for refund, determining a liability for Taxes or a
right to a refund of Taxes, participating in or conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of relevant Tax Returns of the SMR Companies or portions
thereof, together with accompanying schedules, related work papers and documents
relating to rulings or other determinations by Tax authorities. No amended Tax
Return shall be filed for an SMR Company for any taxable period ending on or
before the Closing Date without the prior written consent of the Sellers (which
consent, in the case of an amended Tax Return of FSI or its Subsidiary, shall
not to be unreasonably withheld). The Purchaser shall retain all Tax Returns,
schedules and work papers, records and other documents ("Tax Materials") in its
or any of the SMR Companies' possession relating to Tax matters of the SMR
Companies for each taxable period first ending after the Closing Date and for
all prior taxable periods until the later of (i) the expiration of the statute
of limitations of the taxable periods to which such Tax Returns and other
documents relate, (ii) 6 years following the due date (without extension) for
such Tax Returns, or (iii) the completion of all Legal Proceedings (if any)
relating to any such Tax Return. The provisions of Section 10.3 shall apply to
the Tax Materials in the possession of the SMR Companies or the Purchaser. Any
information obtained under this Section 13.3 shall be kept confidential except
as may be otherwise necessary in connection with the filing of Tax Returns or
claims for refund or in conducting an audit or other proceeding.
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ARTICLE XIV
MISCELLANEOUS
14.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Accounting Referee" has the meaning set forth in Section 1.3(c)
hereof.
"Agreement" has the meaning set forth in the recitals hereof.
"Audit" has the meaning set forth in Section 13.2(c) hereof.
"Balance Sheet Date" has the meaning set forth in Section 3.7
hereof.
"Benefit Arrangement" has the meaning set forth in Section 3.12(b).
"Business" has the meaning set forth in the recitals hereof.
"CERCLA" has the meaning set forth in Section 3.15 hereof.
"Cash Payment" has the meaning set forth in Section 1.3 hereof.
"Closing" means the consummation of the sale and purchase of the
Securities pursuant to this Agreement.
"Closing Balance Sheet" has the meaning set forth in Section 1.3(a)
hereof.
"Closing Date" has the meaning set forth in Section 2.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" has the meaning set forth in Section 3.3(a) hereof.
63
"Company" has the meaning set forth in the recitals hereof.
"Confidentiality Agreement" has the meaning set forth in Section 5.2
hereof.
"Contract" means any contract (including, without limitation, any
resale agreement and any manufacturer authorization or medallion or sales or
distribution contract), agreement, indenture, note, bond, loan, instrument,
lease, conditional sale contract, mortgage, license, franchise, insurance
policy, commitment or other arrangement or agreement, whether written or oral.
"Covered Employees" has the meaning set forth in Section 7.1 hereof.
"Debt and Related Costs" has the meaning set forth in Section 1.3(a)
hereof.
"Election" has the meaning set forth in Section 13.1(a) hereof.
"Election Notice" shall have the meaning set forth in Section
13.1(b) hereof.
"Election Tax Cost" shall have the meaning set forth in Section
13.1(c) hereof.
"Employee Benefit Plan" has the meaning set forth in Section 3.12(b)
hereof.
"Environmental Laws" has the meaning set forth in Section 3.15.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Agreement" has the meaning set forth in Section 1.8 hereof.
"ESOP Purchase Agreement" has the meaning set forth in the Recitals
hereof.
"ESOP Shares" has the meaning set forth in the recitals hereof.
64
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Filed Purchaser SEC Documents" has the meaning set forth in Section
4.7 hereof.
"Final Debt" has the meaning set forth in Section 1.3(c) hereof.
"Final Net Worth" has the meaning set forth in Section 1.3(e)
hereof.
"Final S Period Tax Returns" has the meaning set forth in Section
13.2(a) hereof.
"Financial Statements" has the meaning set forth in Section 3.7
hereof.
"FSI" has the meaning set forth in the recitals hereof.
"FSI ESOP" has the meaning set forth in the recitals hereof.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time.
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency or instrumentality thereof, or any court
or arbitrator (public or private).
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Indebtedness" means, with respect to any Person, (a) all
indebtedness of such Person, whether or not contingent, or borrowed money, (b)
all obligations of such Person for the deferred purchase price of property or
services, (c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all indebtedness created or arising
under any conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies of the
seller or lender under such agreement in the event of default are limited to
repossession or sale of such
65
property), (e) all obligations of such Person as lessee under leases that have
been or should be, in accordance with GAAP, recorded as capital leases, (f) all
obligations, contingent or otherwise, of such Person under acceptance, letter of
credit or similar facilities, (h) all Indebtedness of others referred to in
clauses (a) through (f) above guaranteed directly or indirectly in any manner by
such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement (i) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (ii) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to
supply funds to or in any other manner invest in the debtor (including any
agreement to pay for property or services irrespective of whether such property
is received or such services are rendered) or (iv) otherwise to assure a
creditor against loss, and (i) all Indebtedness referred to in clauses (a)
through (f) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien on
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness.
"Indemnification Threshold" has the meaning set forth in Section
11.7 hereof.
"Indemnified Party" has the meaning set forth in Section 11.4
hereof.
"Indemnifying Party" has the meaning set forth in Section 11.4
hereof.
"Initial Balance Sheet" has the meaning set forth in Section 3.7
hereof.
"Intangible Assets" has the meaning set forth in Section 3.10
hereof.
"Inventories" means all inventory, merchandise, finished goods, and
raw materials, packaging, supplies and other personal property related to the
Business maintained,
66
held or stored by or for the SMR Companies on the Closing Date and any prepaid
deposits for any of the same.
"Law" means any federal, state, local or foreign law (including
common law), statute, code, ordinance, rule, regulation or other requirement.
"Legal Proceeding" means any judicial, administrative or arbitral
action, suit, proceeding (public or private), claim, investigation or
governmental proceeding.
"Letter of Credit" has the meaning set forth in Section 1.7 hereof.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising under
any Law (including, without limitation, any Environmental Laws), Legal
Proceeding or Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement or
other real estate declaration, covenant, condition, restriction or servitude,
transfer restriction under any shareholder or similar agreement, encumbrance or
any other restriction, right in favor of any third party or limitation
whatsoever.
"LLC Interests" has the meaning set forth in the recitals hereof.
"Loss" shall mean any and all claims, losses, liabilities, costs,
penalties, fines and expenses (including reasonable expenses for attorneys,
accountants, consultants and experts), damages, obligations to third parties,
judgments or awards that are imposed upon or otherwise incurred, suffered or
sustained by the relevant party.
"Material Adverse Change" means any material adverse change on, or
in, the assets, business, condition (financial or otherwise), results of
operations or liabilities of the SMR Companies, taken as a whole, or the
Purchaser.
67
"Material Adverse Effect" means an effect that results in or causes,
or has a reasonable likelihood of resulting in or causing, a Material Adverse
Change.
"Material Contracts" has the meaning set forth in Section 3.9
hereof.
"Net Proceeds" has the meaning set forth in
Section 1.6(b) hereof.
"Net Worth" has the meaning set forth in Section 1.3(a) hereof.
"Non-Third Party Claim" has the meaning specified in Section 11.6
hereof.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award.
"Owned Properties" has the meaning set forth in Section 3.5 hereof.
"Partnership Interests" has the meaning set forth in the recitals
hereof.
"Permit" means any written approval, authorization, consent,
franchise, license, permit or certificate by any Governmental Body.
"Permitted Exceptions" means (a) statutory Liens for current taxes,
assessments or other governmental charges not yet delinquent or the amount or
validity of which is being contested in good faith by appropriate proceedings,
(b) mechanics', carriers', workers', repairers' and similar Liens arising or
incurred in the ordinary course of business that are not in the aggregate
material to the SMR Companies, taken as a whole, and which do not relate to
amounts overdue by more than 30 days (unless such amounts are the subject of a
good faith dispute) (c) zoning, entitlement and other land use and environmental
regulations by Governmental Bodies, provided that such regulations have not been
violated, (d) purchase money Liens or purchase money security interests upon or
in any inventory acquired or held by the SMR Companies in the ordinary course of
business to secure the purchase price of such inventory or to secure
indebtedness incurred solely for the purpose of financing the acquisition of
such inventory and (e) such other customary imperfections in title to real
property, charges, easements, restrictions
68
and encumbrances (other than for borrowed money) which do not, render title to
the property encumbered thereby unmarketable and to not, individually or in the
aggregate, materially adversely affect the value or use of such property for its
current and anticipated purposes.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or Governmental Body.
"Personal Property Leases" has the meaning set forth in Section
3.6(a) hereof.
"Proceedings" has the meaning set forth in Section 14.3 hereof.
"Public Offering" has the meaning set forth in Section 1.5 hereof.
"Purchase Price" has the meaning set forth in Section 1.2 hereof.
"Purchaser" has the meaning set forth in the recitals hereof.
"Purchaser Common Stock" has the meaning set forth in Section 1.2
hereof.
"Purchaser Documents" has the meaning set forth in Section 4.2
hereof.
"Purchaser Preferred Stock" has the meaning set forth in Section 1.2
hereof.
"Purchaser Representatives" has the meaning set forth in Section 5.2
hereof.
"Purchaser SEC Documents" has the meaning set forth in Section 4.6
hereof.
"Purchaser Shares" has the meaning set forth in Section 1.2 hereof.
"Real Property Lease" has the meaning set forth in Section 3.5
hereof.
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"Receivables" means any and all accounts receivable, notes and other
amounts receivable by any SMR Company from third parties, including, without
limitation, customers, arising from the conduct of the Business or otherwise
before the Closing Date, whether or not in the ordinary course, together with
all unpaid financing charges accrued thereon.
"Returns" has the meaning set forth in Section 3.11 hereof.
"S Period Return" has the meaning set forth in Section 13.2(a)
hereof.
"Schroders" has the meaning set forth in Section 3.17 hereof.
"Securities" has the meaning set forth in the recitals hereof.
"Securities Act" means the Securities Act of 1933,
as amended.
"Seller's Documents" has the meaning set forth in Section 3.2
hereof.
"Sellers" has the meaning set forth in the recitals hereof.
"Shares" has the meaning set forth in the recitals hereof.
"Shelf Registration" has the meaning set forth in Section 1.5
hereof.
"SMR Associates" has the meaning set forth in the recitals hereof.
"SMR Companies" means, collectively and individually, the Company,
SMR Associates, SMR Developers and the SMR Subsidiaries.
"SMR Developers" has the meaning set forth in the recitals hereof.
"SMR Properties" has the meaning set forth in Section 3.5 hereof.
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"SMR Subsidiaries" means, collectively and individually, SMR
Holdings, Inc., an Ohio corporation, SMR Aerospace Management Company, Inc., an
Ohio corporation, Plush Xxxxx, Inc., a Rhode Island corporation, SMR
Technologies, Inc., an Ohio corporation, Flight Structures, Inc., a Washington
corporation, and Flight Structures International, Inc., a Barbados corporation.
"Subsidiary" means with respect to any Person, any corporation,
partnership or other business entity of which an aggregate of 50% or more of the
outstanding capital stock having ordinary voting power to elect a majority of
the board of directors, managers, trustees or other controlling persons, is, at
the time, directly or indirectly, owned or controlled by such Person and/or one
or more Subsidiaries of such Person (irrespective of whether, at the time,
capital stock of any other class or classes of such entity shall have or might
have voting power by reason of the happening of any contingency).
"Taxes" has the meaning set forth in Section 3.11 hereof.
"Tax Claim" has the meaning set forth in Section 13.2(d) hereof.
"Tax Return" has the meaning set forth in Section 3.11 hereof.
"Third Party Claim" has the meaning specified in Section 11.4
hereof.
14.2 Entire Agreement. This Agreement (with its Schedules and
Exhibits), together with the Seller's Documents and Purchaser Documents,
contain, and is intended as, a complete statement of all of the terms and the
arrangements between the parties hereto with respect to the matters provided for
herein, and supersedes any and all previous agreements and understandings
between the parties hereto with respect to those matters.
14.3 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to agreements
made and to be performed in such jurisdiction. Any action to enforce, which
arises out of or in any way relates to, any of the provisions of this Agreement
or the instruments, agreements
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and other documents contemplated hereby shall be brought and prosecuted in the
courts of the State of Ohio or of the United States for the District of Ohio.
Each party irrevocably: (i) submits to the exclusive jurisdiction of the
aforesaid courts, and (ii) waives any objection which it may have at any time to
the laying of venue of any suit, action or proceeding ("Proceedings") brought in
any such court, waives any claim that such Proceedings have been brought in an
inconvenient forum and further waives the right to object, with respect to such
Proceedings, that such court does not have jurisdiction over such party. The
parties irrevocably consent to service of process given in the manner provided
for notices in Section 14.7. Nothing in this Agreement will affect the right of
any party to serve process in any other manner permitted by law.
14.4 Transfer and Other Taxes. The Purchaser, on the one hand, and
the Sellers, on the other hand, shall each bear 50% of the cost of (a) all
transfer, stamp and documentary taxes and fees imposed with respect to
instruments of conveyance in the transactions contemplated hereby and (b) all
sales, use, gains, real property transfer and other transfer or similar taxes
imposed by reason of the transfer of the Securities contemplated hereunder. The
Purchaser or the Sellers, as the case may be, shall execute and deliver to the
other(s) at the Closing any certificates or other documents as the other may
reasonably request to perfect any exemption from any such transfer, documentary,
sales, gains, use or similar tax.
14.5 Expenses. Each of the parties hereto shall bear its own
expenses (including, without limitation, fees and disbursements of its counsel,
accountants and other experts), incurred by it in connection with the
preparation, negotiation, execution, delivery and performance of this Agreement,
each of the other documents and instruments executed in connection with or
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby. Notwithstanding the foregoing, the SMR
Companies may pay the foregoing expenses of the Sellers, subject to any
adjustment to the Purchase Price required by Section 1.3 hereof.
14.6 Table of Contents and Headings. The table of contents and
section headings of this Agreement are for reference purposes only and are to be
given no effect in the construction or interpretation of this Agreement.
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14.7 Notices. All notices and other communications under this
Agreement shall be in writing (including, without limitation, telegraphic,
telex, telecopy or cable communication) and mailed, telegraphed, telexed,
telecopied, cabled or delivered by hand or by a nationally recognized courier
service guaranteeing overnight delivery to a party at the following address (or
to such other address as such party may have specified by notice given to the
other party pursuant to this provision):
If to the Sellers, to:
c/o SMR Aerospace
0000 Xxxxx Xxxx
X.X. Xxx 000
Xxxxxx Xxxxxx, Xxxx 00000
Facsimile: (000) 000-0000
with a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Block, Esq.
Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
If to the Purchaser, to:
BE Aerospace, Inc.
0000 Xxxxxxxxx Xxxxxx Xxx
Xxxxxxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
with a copy to:
Shearman & Sterling
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx, Esq.
All such notices and communications shall, when mailed, telegraphed, telexed,
telecopied, cabled or delivered, be effective three days after deposit in the
mails, delivered to the telegraph company, confirmed by telex answerback,
telecopied with confirmation of receipt, delivered to the
73
cable company, delivered by hand to the addressee or one day after delivery
to the courier service.
14.8 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validly or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.
14.9 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors,
heirs, executors and permitted assigns. Nothing in this Agreement shall create
or be deemed to create any third-party beneficiary rights in any Person not
party to this Agreement, except as provided in Section 7.1 hereof. No assignment
of this Agreement or of any rights or obligations hereunder may be made by any
party (by operation of law or otherwise) without the prior written consent of
each of the other parties hereto and any attempted assignment without such
required consents shall be void.
14.10 Amendments. (a) Any provision of this Agreement may be amended
or waived if, and only if, such amendment or waiver is in writing and signed,
(i) in the case of an amendment, by the Purchaser and the Sellers, and (ii) in
the case of a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
14.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this instrument
as of the date and year first above written.
BE AEROSPACE, INC.
By: /s/Xxxxxx X. XxXxxxxxx
------------------------------------
Name: Xxxxxx X. XxXxxxxxx
Title: Chief Financial Officer
SELLERS
/s/Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx
/s/Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx
/s/Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx
XXXXX X. XXXXXX TRUST - 1998
By: /s/Xxxxx X. Xxxxxx
------------------------------------
Xxxxx X. Xxxxxx, Trustee
XXXXXXX X. XXXX TRUST - 1998
By: /s/Xxxxxxx X. Xxxx
------------------------------------
Xxxxxxx X. Xxxx, Trustee
XXXXX X. XXXXX TRUST - 1998
By: /s/Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx, Trustee
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