<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 27, 1996
OR
{_} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ___________.
COMMISSION FILE NUMBER 1-11907
COINMACH LAUNDRY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-3258015
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
55 LUMBER ROAD, ROSLYN, NEW YORK 11576
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 484-2300
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT
WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----.
AS OF THE CLOSE OF BUSINESS ON FEBRUARY 6, 1997, COINMACH LAUNDRY CORPORATION
HAD OUTSTANDING 10,004,278 SHARES OF CLASS A COMMON STOCK, PAR VALUE $.01 PER
SHARE (THE "COMMON STOCK"), AND 480,648 SHARES OF NON-VOTING CLASS B COMMON
STOCK, PAR VALUE $.01 PER SHARE (THE "NON-VOTING COMMON STOCK").
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
INDEX
PART I.
Financial Information Page No.
--------------------- --------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
December 27, 1996 (Unaudited) and March 29, 1996 3
Condensed Consolidated Statements of Operations
(Unaudited)--
Three Months and Nine Months Ended December 27, 1996
and December 29, 1995 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) --
Nine Months Ended December 27, 1996
and December 29, 1995 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
PART II.
Other Information 16-17
-----------------
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page 18
--------------
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<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
PART 1. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(dollars in thousands)
<TABLE>
<CAPTION>
December 27, March 29,
1996 1996
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 23,581 $ 19,858
Receivables, net 6,491 5,758
Inventories 6,642 4,443
Prepaid expenses 2,667 2,641
Advance rental payments 23,633 20,320
Property and equipment, less accumulated depreciation
of $35,584 and $19,509 96,854 82,699
Contract rights, less accumulated amortization
of $15,528 and $8,925 61,019 59,745
Goodwill, less accumulated amortization
of $4,139 and $2,386 42,588 44,071
Other assets 10,232 9,613
-------- --------
Total assets $273,707 $249,148
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
Accounts payable $ 7,461 $ 6,085
Accrued commissions 6,408 7,380
Accrued interest 3,102 7,745
Other accrued expenses 8,721 7,557
Deferred income taxes 16,374 18,924
11-3/4% Senior Notes 196,655 196,655
12-3/4% Senior Notes 5,000 5,000
Other long-term debt 2,327 1,110
Shareholders' equity (deficit):
Common stock and capital in excess
of par value 51,732 17,903
Notes receivable from management (439) (492)
Accumulated deficit (23,634) (18,719)
-------- --------
Total shareholders' equity (deficit) 27,659 (1,308)
-------- --------
Total liabilities and shareholders' equity (deficit) $273,707 $249,148
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
-----------
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
December 27, December 29, December 27, December 29,
1996 1995 1996 1995
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
GROSS REVENUES $48,759 $ 44,772 $143,205 $134,491
COSTS AND EXPENSES:
Laundry operating expenses 32,886 30,549 96,482 93,454
General and administrative 1,147 810 3,270 3,161
expenses
Depreciation and amortization 10,389 9,288 30,581 27,711
Stock-based compensation 460 - 1,920 -
charge
Restructuring expenses - - - 2,200
------- -------- -------- --------
44,882 40,647 132,253 126,526
------- -------- -------- --------
OPERATING INCOME 3,877 4,125 10,952 7,965
INTEREST EXPENSE, NET 6,004 5,868 18,146 17,686
------- -------- -------- --------
LOSS BEFORE INCOME TAXES (2,127) (1,743) (7,194) (9,721)
------- -------- -------- --------
PROVISION (BENEFIT) FOR INCOME TAXES:
Currently payable 100 586 250 1,006
Deferred ( 800) (1,015) (2,550) (3,297)
------- -------- -------- --------
( 700) (429) (2,300) (2,291)
------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (1,427) (1,314) (4,894) (7,430)
EXTRAORDINARY ITEM, NET OF INCOME
TAXES OF $5,305 - (8,828) - (8,828)
------- -------- -------- --------
NET LOSS $(1,427) $(10,142) $ (4,894) $(16,258)
======= ======== ======== ========
NET LOSS PER COMMON
AND COMMON EQUIVALENT SHARES
Before Extraordinary item $(.14) $ (.21) $(.56) $ (1.20)
Extraordinary item - (1.42) - (1.42)
------- -------- -------- --------
NET LOSS PER SHARE $(.14) $ (1.63) $(.56) $ (2.62)
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
-----------
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
------------------
December 27, December 29,
1996 1995
------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,894) $(16,258)
Adjustment to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 30,581 27,711
Deferred income taxes (2,550) (3,297)
Extraordinary item - 8,828
Stock-based compensation charge 1,920 -
Amortization of debt discount and debt
issuance 465 1,065
Decrease (increase) in other assets 366 (1,409)
Increase in receivables, net (733) (440)
Decrease in accrued interest (4,643) (2,419)
(Increase) decrease in inventories and
prepayments (2,225) 160
Increase (decrease) in accounts payable 2,067 (152)
(Decrease) increase in accrued expenses (770) 1,695
-------- --------
Net cash provided by
operating activities 19,584 15,484
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (19,618) (14,571)
Advance rental payments to location
owners (7,455) (5,595)
Additions to net assets related to
acquisitions (20,615) (11,925)
-------- --------
Net cash used for investing
activities (47,688) (32,091)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt transactions:
Net repayments of bank and other
borrowings (249) (41,335)
Deferred debt issuance costs (365) (4,779)
Proceeds from issuance of 11 3/4%
Senior Notes - 65,835
Principal payments on capitalized
lease obligations (378) (143)
Debt extinguishment costs - (751)
Equity transactions:
Proceeds from issuance of common
stock 52,047 -
Redemption of preferred stock (19,207) -
Dividend paid-preferred stock (21) -
Loans to shareholders - (154)
Sale of common stock - 6,681
-------- --------
Net cash provided by
financing activities 31,827 25,354
-------- --------
Net increase in cash and cash
equivalents 3,723 8,747
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 19,858 10,774
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 23,581 $ 19,521
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $ 22,760 $ 18,803
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-5-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Coinmach Laundry Corporation ("Coinmach Laundry"), a Delaware corporation,
through its wholly-owned subsidiaries (collectively, the "Company"), is a
leading supplier of coin-operated laundry equipment services for multi-family
housing units. Giving effect to the Kwik Wash Acquisition (as hereinafter
defined), the Company owns and operates approximately 320,000 coin-operated
washers and dryers on routes in over 30,000 locations in 30 states and the
District of Columbia. Such routes are located throughout the Northeast, Mid-
Atlantic, Southeast, South-Central and Midwest regions of the United States.
The Company, through its wholly-owned subsidiary, Super Laundry Equipment Corp.,
a New York corporation ("Super Laundry"), is also a construction and laundromat
equipment distribution company. On January 8, 1997, Coinmach Corporation
("Coinmach"), a wholly-owned subsidiary of Coinmach Laundry, completed the
acquisition of the route and laundromat business of Kwik Wash Laundries L.P.,
for an aggregate purchase price of $140 million (the "Kwik Wash Acquisition").
See Note 9, "Subsequent Events". The Kwik Wash Acquisition does not affect the
results of operations for the three and nine month periods ended December 27,
1996.
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in conformity with generally accepted accounting
principles ("GAAP") for interim financial reporting and pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, such
financial statements do not include all of the information and footnotes
required by GAAP for complete financial statements. GAAP requires the Company's
management to make estimates and assumptions that affect the amounts reported
therein. Actual results could vary from such estimates. In addition, certain
reclassifications have been made to prior period financial statements to conform
with the 1996 presentations. The interim results presented herein are not
necessarily indicative of the results to be expected for the entire year.
In the opinion of management of the Company, these unaudited condensed
consolidated financial statements contain all adjustments of a normal recurring
nature necessary for a fair presentation of the financial statements for the
interim periods presented.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited combined and consolidated financial statements
included in Coinmach Laundry's registration statement (the "Registration
Statement") on Form S-1 (No. 333-03587), including the Prospectus contained
therein, dated July 17, 1996. See Note 6.a. "Equity Restructuring-Initial
Public Offering".
3. ACCOUNTING PRONOUNCEMENTS
Effective March 30, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. FAS 121 also
addresses the accounting for long-lived assets that are expected to be
-6-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
3. ACCOUNTING PRONOUNCEMENTS (continued)
disposed of. The effect of adoption did not have a material impact on the
Company's results of operations or financial condition for the three months and
nine months ended December 27, 1996.
In October 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation" ("FAS 123"). FAS 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans. FAS 123 is effective for transactions entered into in
fiscal years beginning after December 15, 1995. The Company has accounted for
stock-based compensation awards pursuant to the provisions of Accounting
Principles Board Opinion No. 25, as permitted by FAS 123, but will provide the
necessary disclosure information in the Company's annual report on Form 10-K for
the fiscal year ended March 28, 1997.
4. LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Loss per common and common equivalent share is computed by dividing net loss
applicable to common stock by the weighted average number of shares of common
stock and common stock equivalents outstanding during each period. Weighted
average shares outstanding were 10,453,105 and 8,815,065, respectively, for the
three month and nine month periods ended December 27, 1996 and 6,193,830 for
each of the three month and nine month periods ended December 29, 1995.
All common share data presented in this report on Form 10-Q has been restated to
reflect a reclassification of the Company's capital stock and an approximate 23-
to-1 stock split, in each case, which were effected in connection with the
Offering (as defined below). See Note 6.b. - "Equity Restructuring -
Reclassification and Stock Split".
5. LONG-TERM DEBT
At December 27, 1996, Coinmach had long-term debt consisting of (a)
approximately $196.7 million of 11 3/4% Senior Notes due 2005, (b) $5.0 million
of 12 3/4% Senior Notes due 2001 (collectively, the "Senior Notes") and (c) an
availability of up to $35.0 million under a revolving credit facility which,
among other items, imposed restrictions on the Company's ability to incur debt,
make acquisitions and certain restricted payments, create liens, sell assets or
enter into transactions with affiliates. The revolving credit facility
contained covenants and agreements that were generally more restrictive than the
indentures governing the Senior Notes. Also, the Senior Notes and the revolving
credit facility limited Coinmach's ability to pay dividends. At December 27,
1996, there were no amounts outstanding under the Company's then existing
revolving credit facility.
On January 8, 1997, the Company replaced its existing revolving credit facility
with a new senior financing facility, which facility was used in part to fund
the Kwik Wash Acquisition and support the Company's acquisition strategy.
-7-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
6. EQUITY RESTRUCTURING
a. INITIAL PUBLIC OFFERING
On July 23, 1996, Coinmach Laundry completed its initial public offering (the
"Offering") of 4,120,000 shares of its Common Stock at an initial public
offering price of $14.00 per share. Coinmach Laundry's Registration Statement
for 4,000,000 shares of Common Stock was filed with the Securities and Exchange
Commission on May 13, 1996 and subsequently declared effective on July 17, 1996.
On July 18, 1996, Coinmach Laundry filed an additional registration statement on
Form S-1 (No. 333-08331) with respect to the registration of an additional
120,000 shares of Common Stock, which registration statement was effective upon
filing.
In connection with the Offering, the underwriters were granted a 30-day option
to purchase up to an aggregate of 618,000 additional shares of Common Stock to
cover over-allotments (the "Over-Allotment Option"), which Over-Allotment Option
was exercised on August 16, 1996 with respect to the purchase of an additional
63,642 shares of Common Stock.
Proceeds from the Offering were approximately $54.5 million (after giving affect
to the Over-Allotment Option), after underwriting discounts and commissions.
After giving effect to the redemption of the Preferred Stock (as described
below), proceeds from the Offering were approximately $35.3 million, before
expenses.
b. RECLASSIFICATION AND STOCK SPLIT
In connection with the Offering, Coinmach Laundry approved a reclassification
(the "Reclassification") of all of its capital stock pursuant to which all seven
classes of the previously issued and outstanding capital stock of Coinmach
Laundry prior to the Offering were converted into a class of preferred stock, a
class of voting common stock and a class of non-voting common stock. As part of
the Reclassification, holders of Coinmach Laundry's Class A common stock, Class
E common stock and Class F common stock immediately prior to the Offering
(collectively, the "Preference Shares") received, in respect of such Preference
Shares, shares of Common Stock and shares of Series A preferred stock, par value
$.01 per share (the "Preferred Stock") representing an amount equal to the sum
of: (a) preferred dividends on such Preference Shares in an amount equal to the
accrued yield (at a rate of 8% per annum, compounded quarterly) on the original
investment in such Preference Shares through July 23, 1996; and (b) an amount
equal to the original investment in such Preference Shares. Holders of
Preference Shares who were members of the Company's management received an
aggregate of 28,425 shares of Common Stock, and holders of the Preference Shares
who were not members of the Company's management received an aggregate of 1,000
shares of Preferred Stock.
In connection with the Reclassification, Coinmach Laundry also approved an
approximate 23-to-1 stock split (the "Stock Split") payable to shareholders of
record of Coinmach Laundry on July 12, 1996.
c. REDEMPTION OF PREFERRED STOCK
Immediately following the Offering, approximately $19.2 million of the proceeds
of the Offering were used by the Company to retire all of the issued and
outstanding shares of Preferred Stock.
-8-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
7. RELATED PARTY TRANSACTIONS
Prior to the Offering, Coinmach Laundry issued, in privately negotiated
transactions, 79,029 shares of its Class B common stock to certain members of
management, which shares were purchased through loans made by the Company
aggregating approximately $56,000. The difference between the estimated fair
market value of such stock (which management believes, based upon discussions
with its financial advisors to be approximately 85% of the initial offering
price of the Common Stock) and the amount paid for such stock was approximately
$887,000, and such difference has been accounted for as a stock-based
compensation charge. In addition, approximately $103,000 of outstanding
receivables relating to loans to management in connection with prior purchases
of Coinmach Laundry's common stock were forgiven and have been accounted for as
a stock-based compensation charge.
On July 23, 1996, in connection with the Offering, Coinmach Laundry granted
certain non-qualified options (the "Options") to certain members of management
and other individuals (collectively, the "Option Holders") to purchase up to
735,618 shares of Common Stock at 85% of the initial offering price of the
Common Stock. On September 17, 1996, for the purpose of preserving the Option
Holders' percentage interest of Common Stock represented by the Options (which
percentage interest was decreased as a result of the exercise of the Over-
Allotment Option), Coinmach Laundry granted to the Option Holders additional
non-qualified stock options to purchase up to 3,819 shares of Common Stock (the
"Additional Options"). The Options and Additional Options vest in equal annual
installments (20% vest immediately on the date of grant and the remainder over a
four year period) commencing on July 23, 1996, the effective date of the
Offering. With respect to Options and Additional Options granted to employees
of the Company, the Company will record the difference between the exercise
price and the initial offering price of Common Stock as a stock-based
compensation charge over the applicable four year vesting period.
On September 17, 1996, Coinmach Laundry granted to Dr. Arthur B. Laffer and Mr.
Stephen G. Cerri, each of whom was appointed by the Board of Directors of
Coinmach Laundry on such date to serve as independent directors, options
entitling each such director to purchase up to 60,000 shares of Common Stock
(the "Independent Director Options"). The Independent Director Options vest in
equal annual installments (25% vest immediately on the date of grant and the
remainder over a three year period), commencing on September 17, 1996, and
entitle each such director to purchase shares of Common Stock at the initial
public offering price of the Common Stock. The Company will record the
difference between the exercise price of the Independent Director Options and
the fair market value of the Common Stock on September 17, 1996 as a stock-based
compensation charge over the applicable three year vesting period.
For the nine months ended December 27, 1996, the Company has recorded a stock-
based compensation charge of approximately $930,000 relating to the Options, the
Additional Options and the Independent Director Options.
-9-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(continued)
8. GRANT OF STOCK OPTIONS UNDER COINMACH LAUNDRY'S EMPLOYEE STOCK OPTION PLAN.
On August 8, 1996, Coinmach Laundry granted non-qualified options to purchase up
to 181,250 shares of Common Stock (the "Plan Options") pursuant to Coinmach
Laundry's Second Amended and Restated 1996 Employee Stock Option Plan (the
"Stock Option Plan") to certain members of management and other employees of the
Company (collectively, the "Plan Option Holders"). The Plan Options vest in
five equal annual installments commencing on August 8, 1996, and entitle each
Plan Option Holder to purchase shares of Common Stock at an exercise price equal
to the per share fair market value of the Common Stock on the date of grant.
The Stock Option Plan provides for the issuance of options to purchase 1,109,147
shares of Common Stock, representing approximately 9% of Coinmach Laundry's
issued and outstanding Common Stock and Non-Voting Common Stock. The Stock
Option Plan is administered by the Plan Administration and Compensation
Committee, a committee of the Board of Directors of the Company comprised solely
of disinterested directors.
9. SUBSEQUENT EVENTS
On January 8, 1997, pursuant to the terms and conditions of a Stock Purchase
Agreement, dated November 25, 1996 (the "Kwik Wash Purchase Agreement"),
Coinmach completed the Kwik Wash Acquisition pursuant to which Coinmach acquired
100% of the outstanding voting securities of each of KWL, Inc. ("KWL"), a Nevada
corporation, and Kwik-Wash Laundries, Inc. ("Kwik Wash"), a Nevada corporation,
for $125 million in cash and a $15 million promissory note issued by Coinmach
Laundry. KWL and Kwik Wash are the sole partners of Kwik Wash Laundries, L.P.
(the "Partnership"), a Texas limited partnership. The Partnership, based in
Dallas, Texas, provides coin-operated laundry equipment services to multi-family
dwellings in Texas, Louisiana, Arkansas and Oklahoma and operates approximately
150 laundromat stores throughout Texas. Upon consummation of the Kwik Wash
Acquisition, KWL, Kwik Wash and the Partnership merged with and into Coinmach.
Concurrently with the Kwik Wash Acquisition, Coinmach also entered into a new
senior financing arrangement with Bankers Trust Company, First Union National
Bank of North Carolina and Lehman Commercial Paper, Inc. (the "New Credit
Facility"), replacing the Company's existing credit facility. The New Credit
Facility consists of term loans of $130 million and a revolving credit facility
of $70 million. The New Credit Facility was used in part to fund the Kwik Wash
Acquisition and will provide financing to support Coinmach's acquisition
strategy.
-10-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, certain matters
discussed in this document are forward-looking statements that involve certain
risks and uncertainties, including the risks and uncertainties discussed below,
as well as other risks set forth in the Registration Statement.
GENERAL
- -------
The Company, through its operating subsidiaries, is principally engaged in
supplying coin-operated laundry equipment services to multi-family housing units
in 30 states and the District of Columbia located throughout the Northeast, Mid-
Atlantic, Southeast, South-Central and Midwest regions of the United States.
The most significant revenue source is derived from its routes, which, giving
effect to the Kwik Wash Acquisition, are comprised of approximately 30,000
locations containing over 320,000 coin-operated washing machines and dryers.
The Company provides coin-operated laundry equipment services to locations by
leasing designated laundry rooms in buildings on a long-term basis.
The Company, through its operating subsidiary, also owns and operates Super
Laundry. Super Laundry's business consists of constructing complete turnkey
laundromat retail stores, retrofitting existing laundromat retail stores,
distributing exclusive and non-exclusive lines of commercial coin and non-coin
laundry machines and parts, and selling service contracts.
RESULTS OF OPERATIONS
- ---------------------
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto and with
the Company's audited combined and consolidated financial statements and notes
thereto for the six month transition period ended March 29, 1996, which are
included in the Registration Statement.
COMPARISON OF THE THREE MONTH AND NINE MONTH PERIODS ENDED DECEMBER 27, 1996 AND
DECEMBER 29, 1995.
Gross revenues increased by approximately 9% and 6%, respectively, for the three
month and nine month periods ended December 27, 1996, as compared to the prior
year's corresponding periods. The improvement in gross revenues for the three
month and nine month periods consisted primarily of increased route revenues
resulting from internal expansion, the acquisition of the route business of
Allied Laundry Equipment Company (the "Allied Acquisition") located in the
Midwest, and an increase in distribution revenues from Super Laundry. During
the nine months ended December 29, 1995, the Company's machine base declined by
approximately 2,000 machines, primarily due to capital constraints, but
increased by approximately 5,400 machines during the nine months ended December
27, 1996 (excluding the machines added from the Allied Acquisition).
Laundry operating expenses increased by approximately 8% and 3%, respectively,
for the three month and nine month periods ended December 27, 1996, as compared
to the prior year's corresponding periods. The increase was due primarily to an
increase in laundry operating expenses related to the Allied Acquisition as well
as an increase in the cost of sales related to Super Laundry's increased sales
volume. Such increase in laundry operating expenses
-11-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
- ---------------------
was substantially offset by a reduction in expenses primarily related to the
implementation of cost savings programs in the Company's field operations and
the consolidation of certain operating regions.
General and administrative expenses increased by approximately $.3 million and
$.1 million, respectively, for the three month and nine month periods ended
December 27, 1996, as compared to the prior year's corresponding periods, due to
increased expenses associated with the Company's recent growth; specifically, a
focus on new business opportunities, investor relations and systems development,
but offset substantially during the nine month period by the consolidation of
the Company's corporate staff into its existing facility in Roslyn, New York on
September 29, 1995.
Depreciation and amortization increased by approximately 12% and 10%,
respectively, for the three month and nine month periods ended December 27,
1996, as compared to the prior year's corresponding periods, due primarily to
the Allied Acquisition and an increase in capital expenditures resulting from
the elimination of capital constraints subsequent to September 29, 1995.
The Company incurred one-time restructuring costs of approximately $2.2 million
during the three months ended September 29, 1995, to cover severance obligations
to certain personnel, costs to relocate certain corporate functions to Roslyn,
New York, costs related to systems integration, and expenses related to the
consolidation of certain of its regional offices. In addition, during the three
months ended December 29, 1995, the Company incurred costs of approximately $8.8
million, net of income taxes, related to the extinguishment of debt in
connection with the November 1995 refinancing of the Company's indebtedness.
Prior to the Offering, Coinmach Laundry issued, in privately negotiated
transactions, 79,029 shares of its Class B common stock to certain members of
management. The difference between the estimated fair market value of such
stock (estimated by management, based on discussions with its financial advisors
to be 85% of the initial offering price of the Common Stock) and the amount paid
for such stock was approximately $887,000 and has been recorded as a stock-based
compensation charge. In addition, approximately $103,000 of receivables
relating to loans to management in connection with prior purchases of Coinmach
Laundry's common stock were forgiven and have been recorded as a stock-based
compensation charge.
The Company also granted Options to management and certain other individuals to
purchase shares of Common Stock at a 15% discount to the initial offering price
of the Common Stock. With respect to such options granted to its employees, the
Company will record such discount as a stock-based compensation charge over the
applicable four year vesting period. The Company also granted to two of its
disinterested directors Independent Director Options to purchase up to a total
of 120,000 shares of Common Stock. The Company will record the difference
between the exercise price of such options and the fair market value of the
Common Stock on the date of grant as a stock-based compensation charge over the
applicable three year vesting period. During the nine months ended December 27,
1996, the Company recorded a stock-based compensation charge of approximately
$930,000 relating to the Options, Additional Options and Independent Director
Options.
-12-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS (continued)
- ---------------------
As a result of the above, operating income margins were approximately 8% for
both the three month and nine month periods ended December 27, 1996, as compared
to approximately 9% and 6%, respectively, for the three month and nine month
periods ended December 29, 1995.
Interest expense increased by approximately 2% and 3%, respectively, for the
three month and nine month periods ended December 27, 1996, as compared to the
prior year's corresponding periods, due primarily to the incurrence of debt
resulting from the Company's refinancing in November 1995. Partially offsetting
this increase in interest expense was the decrease in the effective interest
rate as the result of such refinancing, as well as interest income earned on
excess cash balances generated from the net proceeds from the Offering.
EBITDA (earnings before deductions for interest, income taxes, depreciation and
amortization) was approximately $43.5 million (before deduction for the stock-
based compensation charges) for the nine months ended December 27, 1996,
compared to approximately $37.9 million (before deduction for restructuring
costs) for the corresponding period in 1995, representing an improvement of
approximately 15%. EBITDA margins improved to approximately 30% for the nine
months ended December 27, 1996, compared to approximately 28% for the prior
year's corresponding period. EBITDA is used by management and certain investors
as an indicator of a company's historical ability to service debt. Management
believes that an increase in EBITDA is an indication of a company's improved
ability to service existing debt, to sustain potential future increases in debt
and to satisfy capital requirements. However, EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an alternative
to either (a) operating income (as determined by GAAP) as an indicator of
operating performance or (b) cash flows from operating, investing and financing
activities (as determined by GAAP) as a measure of liquidity. Given that EBITDA
is not a measurement determined in accordance with GAAP and is thus susceptible
to varying calculations, EBITDA as presented may not be comparable to other
similarly titled measures of other companies.
The Company's effective income tax rate differs from the amount computed by
applying the U.S. federal statutory rate to loss before income taxes as a result
of state taxes and permanent book/tax differences (largely attributable to
goodwill amortization).
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company continues to have substantial indebtedness and debt service
requirements. At December 27, 1996, the Company had outstanding long-term debt
of approximately $204.0 million and shareholders' equity of approximately $27.7
million.
The Company's level of indebtedness will have several important effects on its
future operations, including the following: (a) a significant portion of the
Company's cash flow from operations will be required to pay interest on its
indebtedness and will not be available for other purposes; (b) financial
covenants contained in certain of the agreements governing the Company's
indebtedness will require the Company to meet certain financial tests and will
limit its ability to borrow additional funds or to dispose of assets; (c) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired; and (d) the Company's ability to adapt to changes in the coin-operated
laundry equipment services industry and to economic conditions in general will
be limited. At December 27, 1996, there was no amount outstanding under the
Company's then existing revolving credit facility.
-13-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
- ---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
The Company's depreciation and amortization expenses (aggregating approximately
$30.6 million for the nine months ended December 27, 1996) have the effect of
reducing net income but not operating cash flow. In accordance with GAAP, a
significant amount of the purchase price of businesses acquired by the Company
is allocated to "contract rights", which costs are amortized over periods of up
to 15 years. Although such accounting treatment has a favorable effect on
operating cash flow by reducing taxes, it also reduces net income. The Company
expects to continue such accounting practice with future acquisitions.
The Company anticipates that it will continue to utilize cash flows from
operations to finance its capital expenditures and working capital needs,
including interest payments on its outstanding indebtedness. Capital
expenditures for the nine months ended December 27, 1996 were approximately
$47.7 million. Of such amount, the Company spent approximately $20.6 million in
purchase price and related costs of acquisitions, including the Allied
Acquisition, and approximately $6.6 million related to the net increase in the
machine base. The balance was used to maintain the existing machine base and
for general corporate purposes. The impact on revenues and EBITDA generated
from capital expended on acquisitions and the net increase in the machine base
are not expected to be reflected in the Company's financial results until
subsequent reporting periods, depending on the timing of the capital expended.
The Company's working capital requirements are, and are expected to continue to
be, minimal since a significant portion of the Company's operating expenses are
not paid until after cash is collected from the installed machines. In
connection with certain of the financing agreements governing the Company's
indebtedness, Coinmach Corporation is required to make semi-annual cash interest
payments on the Senior Notes.
On January 8, 1997, pursuant to the terms and conditions of the Kwik Wash
Purchase Agreement, Coinmach completed the Kwik Wash Acquisition pursuant to
which Coinmach acquired 100% of the outstanding voting securities of each of
KWL, and Kwik Wash, for $125 million in cash and a $15 million promissory note
issued by Coinmach Laundry (the "Kwik Wash Note"). KWL and Kwik Wash are the
sole partners of Kwik Wash Laundries, L.P., a Texas limited partnership (the
"Partnership"). The Partnership, based in Dallas, Texas, provides coin-operated
laundry equipment services to multi-family dwellings in Texas, Louisiana,
Arkansas and Oklahoma and operates approximately 150 laundromat stores
throughout Texas. Simultaneously with the Kwik Wash Acquisition, KWL, Kwik Wash
and the Partnership merged with and into Coinmach.
Concurrently with the Kwik Wash Acquisition, Coinmach also entered into the New
Credit Facility with Bankers Trust Company, First Union National Bank of North
Carolina and Lehman Commercial Paper, Inc., replacing the Company's existing
credit facility. The New Credit Facility consists of term loans of $130 million
and a revolving credit facility of $70 million. The New Credit Facility was
used in part to fund the Kwik Wash Acquisition and will provide financing to
support Coinmach's acquisition strategy.
-14-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES (continued)
- -------------------------------
Management believes that the Company's future operating activities will generate
sufficient cash flow to repay borrowings under the Senior Notes, the New Credit
Facility and the Kwik Wash Note or to permit any necessary refinancings thereof.
An inability of the Company, however, to comply with covenants or other
conditions contained in the indentures governing the Senior Notes or in the New
Credit Facility could result in an acceleration of the amounts due thereunder.
If the Company is unable to meet its debt service obligations, it could be
required to take certain actions such as reducing or delaying capital
expenditures, selling assets, refinancing or restructuring its indebtedness,
selling additional equity capital or other actions. There is no assurance that
any of such actions could be effected on commercially reasonable terms, if at
all, or on terms permitted under the New Credit Facility or the indentures
governing the Senior Notes.
As part of its business strategy, the Company will continue to evaluate
opportunities to acquire local, regional and multi-regional route businesses.
There can be no assurance that the Company will find attractive acquisition
candidates or effectively manage the integration of acquired businesses into its
existing business.
INFLATION AND SEASONALITY
- -------------------------
In general, the Company's laundry operating expenses and general and
administrative expenses are affected by inflation, and the effects of inflation
may be experienced by the Company in future periods. Management believes that
such effects have not been nor will be material to the Company. The Company's
business generally is not seasonal.
-15-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business.
Although the amount of any liability that could arise with respect to these
actions can not be accurately predicted, management believes that any such
liability, individually or in the aggregate, will not have a material adverse
effect on the financial condition and results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
At a regular meeting of the Board of Directors (the "Board") of Coinmach
Laundry held on November 1, 1996, at which all of the directors of Coinmach
Laundry were present, the Board approved (i) a reconstitution of the Board's
Compensation Committee so that it is comprised of Messrs. David A. Donnini,
Stephen G. Cerri and Arthur B. Laffer and (ii) a reconstitution of the Board's
Audit Committee so that it is comprised of Messrs. Stephen G. Cerri, Arthur B.
Laffer and James N. Chapman.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
10.1 Commitment Letter, dated November 22, 1996, from Bankers Trust Company,
First Union Bank of North Carolina and Lehman Commercial Paper Inc.,
addressed to Coinmach Laundry Corporation
10.2 Stock Purchase Agreement, dated November 25, 1996, by and among Tamara Lynn
Ford, Robert Kyle Ford, Traci Lea Ford, Tucker F. Enthoven, Richard F.
Enthoven, Richard Franklin Ford, Jr., Trustee U/D/T February 4, 1994, KWL,
Inc., Kwik-Wash Laundries, Inc., Kwik Wash Laundries, L.P. and Coinmach
Corporation (the "Stock Purchase Agreement")
10.3 First Amendment to Stock Purchase Agreement, dated as of January 8, 1997
27.1 Financial Data Schedule
-16-
<PAGE>
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K, dated November 25, 1996,
reporting in Item 5 thereof, the execution and delivery of the Kwik Wash
Purchase Agreement and the receipt of a commitment for senior financing in
connection with the New Credit Facility.
-17-
<PAGE>
COINMACH LAUNDRY CORPORATION AND SUBSIDIARIES
---------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COINMACH LAUNDRY CORPORATION
Date: February 7, 1997 /s/ Robert M. Doyle
-------------------------------------------------
Robert M. Doyle
Senior Vice President and Chief Financial Officer
(On behalf of registrant
and as Principal Financial Officer)
-18-
<PAGE>
EXHIBIT 10.1
BANKERS TRUST COMPANY
ONE BANKERS TRUST PLAZA
NEW YORK, NEW YORK 10005
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
301 S. COLLEGE STREET, DC-5
CHARLOTTE, NC 28288
LEHMAN COMMERCIAL PAPER INC.
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
November 22, 1996
Coinmach Laundry Corporation
55 Lumber Road
Roslyn, New York 11576
Attention: Stephen R. Kerrigan
Chief Executive Officer
Re: Coinmach Corporation Financing
------------------------------
Ladies and Gentlemen:
You have advised Bankers Trust Company ("BTCo") and First Union
National Bank of North Carolina ("First Union"), and Lehman Commercial Paper
Inc. ("LCPI", and together with BTCo and First Union, the "Arrangers" and,
together with a syndicate of lenders formed by the Arrangers, the "Lenders")
that Coinmach Corporation ("Coinmach"), a wholly-owned subsidiary of Coinmach
Laundry Corporation ("CLC"), intends to acquire all of the common stock of the
partners of KWIK Wash Laundries L.P. ("KWIK Wash") from the holders thereof (the
"Holders"), which may either (x) be combined with Coinmach or (y) remain as a
wholly-owned subsidiary of Coinmach (such surviving entity is hereinafter called
the "Company" and such acquisition and combination (if it occurs) is hereinafter
called the "Acquisition").
The Arrangers understand that the total consideration required to
consummate the Acquisition and to pay the fees and expenses incurred in
connection therewith will be no more than $145.0 million which will consist of
$130.0 million provided by the Senior Bank Financing (as defined below) and by
the issuance and sale by CLC of $15.0 million principal amount of senior
promissory notes to the Holders (the "CLC Notes ") having terms and conditions
satisfactory to us. The Arrangers also understand that the funding required to
effect the Acquisition, to pay
-1-
<PAGE>
related fees and expenses in connection therewith, and to provide for the
general corporate purposes of the Company and its subsidiaries shall be provided
solely from the incurrence by the Company of the senior secured bank financing
described below and the issuance and sale of the CLC Notes. The sources and uses
of funds in connection with the Acquisition will be as set forth in Exhibit A
attached hereto.
The Arrangers further understand that the senior secured bank
financing will be in the form of a credit facility (the "Senior Bank Financing")
in the amount of $180 million consisting of a $50 million revolving credit
facility (the "Revolving Credit Facility"), a $65 million term loan facility
(the "Term Loan A Facility") and a $65 million term loan facility (the "Term
Loan B Facility") (it being understood that only up to $130 million of loans may
be utilized, at Closing, in connection with the Acquisition). A preliminary
summary of certain terms and conditions of the Senior Bank Financing is attached
as Exhibit B to the Letter (the "Summary of Terms").
BTCo, First Union and LCPI are each pleased to confirm that, subject
to and upon the terms and conditions set forth herein and in the Summary of
Terms, BTCo hereby commits to provide up to $67,500,000, First Union hereby
commits to provide up to $67,500,000 and LCPI hereby commits to provide up to
$45,000,000 of the Senior Bank Financing on the terms and conditions set forth
herein and in the Summary of Terms. BTCo shall act as the sole administrative
agent (in such capacity, the 'Administrative Agent"), First Union shall act as
syndication agent (the "Syndication Agent") and LCPI shall act as documentation
agent (the "Documentation Agent") with respect to the Senior Bank Financing.
Each of BTCo's, First Union's and LCPI's commitments as described in this
paragraph are subject to the matters set forth below in this letter and in the
Term Sheet and neither of such institutions shall have any liability or
responsibility with respect to the commitment of any other institution.
The Arrangers reserve the right, prior to or after execution of the
definitive credit documentation, to syndicate all or part of the total
commitment to one or more financial institutions that are reasonably acceptable
to you and will become parties to such definitive credit documentation for the
Senior Bank Financing pursuant to a syndication to be managed by First Union.
The Arrangers shall commence syndication efforts promptly after the execution of
this letter, and you agree actively to assist the Arrangers in achieving a
syndication that is reasonably satisfactory to the Arrangers and you. Subject
to the foregoing, it is understood and agreed that your assistance is a
condition to the obligations of the Arrangers under this Agreement and it is
understood that a failure to syndicate the
-2-
<PAGE>
Senior Bank Financing will not relieve the Arrangers of their commitment
obligations. Such syndication will be accomplished by a variety of means,
including direct contact during the syndication between senior management and
advisors of CLC and the Company and the proposed syndicate members. To assist
the Arrangers in their syndication efforts, you hereby agree (a) to provide us
and the other syndicate members upon request with all information held by and
otherwise available to you and deemed reasonably necessary by us to complete
syndication, including but not limited to, information and evaluations prepared
by CLC or the Company, their respective subsidiaries, and their respective
advisors or on their behalf relating to the transactions contemplated hereby and
(b) to assist the Arrangers upon reasonable request in the preparation of an
Information Memorandum to be used in connection with the syndication of the
Senior Bank Financing, including making available officers of the Company from
time to time and to attend and make presentations regarding the business and
prospects of CLC and the Company, as appropriate, at a meeting or meetings of
Lenders or prospective Lenders.
You hereby agree that all reasonable fees and expenses (including the
reasonable fees and expenses of counsel) of BTCo and its affiliates, First Union
and its affiliates and LCPI and its affiliates arising in connection with this
letter (and our due diligence in connection herewith) and in connection with the
transactions described herein (but excluding any fees, but not expenses,
relating to syndication) shall be for your account, whether or not the
Acquisition is consummated, the Senior Bank Financing is made available or
definitive credit documents are executed provided that no Arranger or its
affiliates shall be entitled to payment or reimbursement of its such fees and
expenses to the extent that such Arranger has defaulted in its obligations
hereunder (other than as a result of a good faith determination that a condition
precedent has not been satisfied). This letter is issued for your benefit only
and no other person or entity may rely thereon.
The provisions of the immediately preceding paragraph shall survive
any termination of this letter.
BTCo, First Union and LCPI reserve the right to employ the services of
their respective affiliates (including BT Securities Corporation ("BTSC"), First
Union Capital Market Corp. ("FUCMC") and Lehman Brothers ("Lehman") in providing
services contemplated by this letter and to allocate, in whole or in part, to
such affiliates certain fees payable to the Arrangers in such manner as the
Arrangers and such respective affiliates may agree in their sole discretion.
You acknowledge that the Arrangers may share with any of their affiliates
(including BTSC, FUCMC and Lehman) any information related to the Acquisition or
any of the
-3-
<PAGE>
matters contemplated hereby. Each of the Arrangers agrees to treat, and cause
any such affiliates to treat, all non-public information provided to it by CLC
or the Company or any of its affiliates as confidential information in
accordance with the confidentiality letters executed by such Arranger.
Each of BTCo's, First Union's and LCPI's commitments to provide the
Senior Bank Financing as set forth above will terminate on January 31, 1997, if
a definitive credit agreement evidencing the Senior Bank Financing, reasonably
satisfactory in form and substance to the Arrangers (the "Credit Agreement"),
shall not have been entered into prior to such date or if at any time prior to
the execution of the proposed Credit Agreement, or the consummation of the
Acquisition, as the case may be, the Arrangers are supplied with or discover
information not previously disclosed to them which any of the Arrangers believes
has a materially negative impact on the Company and its subsidiaries taken as a
whole or the feasibility of the Acquisition.
Except as otherwise required by law, legal process or unless the
Arrangers have otherwise consented, you are not authorized to show or circulate
this letter to any other person or entity (other than your legal, tax or
financial advisors in connection with your evaluation hereof). If this letter
is not accepted by you as provided in the immediately succeeding paragraph, you
are to immediately return this letter (and copies hereof) to the undersigned.
This letter, the related fee letter and the related indemnity letter
shall be governed by and construed in accordance with the law of the State of
New York, and by your execution hereof, you consent to the jurisdiction of the
courts thereof. All parties hereby irrevocably waive all right to trial by jury
of actions, proceedings or counterclaims (whether based on contract, tort or
otherwise) arising out of or relating to this letter, the transactions
contemplated hereby or the negotiation, performance or enforcement hereof.
If you are in agreement with the foregoing, please sign and return to
BTCo, First Union and LCPI (including by way of facsimile transmission) the
enclosed copy of this letter no later than 5:00 p.m., New York time, on the date
hereof and the related fee letter. This letter may be executed in any number of
counterparts, and by the different parties hereto on separate
-4-
<PAGE>
counterparts, each of which when executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
Very truly yours,
BANKERS TRUST COMPANY
By: /s/ Victoria T. Page
------------------------------
Title: Managing Director
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Jorge Gonzalez
------------------------------
Title: Senior Vice President
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Christopher R. Ryan
------------------------------
Title: Authorized Signatory
Agreed to and Accepted as of
the Date First Above Written.
COINMACH LAUNDRY CORPORATION
/s/ STEPHEN R. KERRIGAN
By: ______________________________
Title: Chief Executive Officer
-5-
<PAGE>
EXHIBIT A
SOURCES AND USES
----------------
(Dollars in Millions)
Sources Uses
- ------- ----
Term Loan A Facility $ 65.0 Acquisition of $140.0
Term Loan B Facility $ 65.0 KWIK Wash
CLC Notes $ 15.0 Fees and Expenses $ 5.0
------ ------
Total Sources $145.0 $145.0
====== ======
-6-
<PAGE>
EXHIBIT B
PRELIMINARY SUMMARY OF CERTAIN TERMS AND CONDITIONS
---------------------------------------------------
Administrative
Agent: BTCo
Syndication Agent: First Union
Documentation
Agent: LCPI (BTCo, First Union and LCPI are hereinafter
collectively called the "Arrangers")
Lenders: BTCo, First Union, LCPI and/or a syndicate of lenders formed
by BTCo, First Union and LCPI (the "Lenders").
Borrower: Coinmach Corporation (the "Borrower").
Facility: $180 million of senior secured credit facilities (the
"Credit Facilities"), including a $5 million letter of
credit sublimit.
Type and Amount: The Credit Facilities shall consist of the Term Loan
Facility and the Revolving Credit Facility.
Term Loan Facility. The Term Loan Facility will consist of
------------------
Tranche A Term Loans and Tranche B Term Loans. The Lenders'
commitments to lend the Tranche A Term Loans and the Tranche
B Term Loans will terminate immediately upon the
consummation of the Acquisition.
Tranche A Term Loans. The Tranche A Term Loans will have a
--------------------
final maturity date of six years after the date of the
initial funding under the Credit Facilities (the "Closing
Date") and be in an original principal amount of up to $65
million. Equal quarterly amortization will be required
resulting in aggregate annual amounts as follows:
-7-
<PAGE>
Year Aggregate Annual Amortization
---- -----------------------------
First Year $ 5,000,000
Second Year 5,000,000
Third Year 10,000,000
Fourth Year 10,000,000
Fifth Year 15,000,000
Sixth Year 20,000,000
-----------
$65,000,000
Tranche B Term Loans. The Tranche B Term Loans will have a
--------------------
final maturity date of seven and one half years after the
Closing Date and be in an original principal amount of up to
$65.0 million. Equal semi-annual amortization will be
required resulting in aggregate annual amounts as follows:
Year Aggregate Annual Amortization
---- -----------------------------
First Year $ 650,000
Second Year 650,000
Third Year 650,000
Fourth Year 650,000
Fifth Year 650,000
Sixth Year 650,000
Seventh Year 30,550,000
Final Maturity 30,550,000
-----------
$65,000,000
The amount, maturity and amortization of each tranche of the
Term Loan Facility may be altered at the discretion of the
Arrangers with the consent of the Borrower (which consent
shall not be unreasonably withheld) if so required by market
conditions, including to the extent necessary, in the
Arrangers' judgment, to facilitate pre-closing syndication
of the Facility; provided that the aggregate principal
--------
amount of the Term Loan Facility will not be reduced.
Revolving Credit Facility. The Revolving Credit Facility
-------------------------
will mature six years after the Closing Date and be in an
original amount of up to $50 million, under which revolving
loans may be made and under which letters of credit may be
issued up to a $5 million sublimit. A portion of the
Revolving Credit Facility, in an amount to be agreed upon,
shall be made available as a swingline facility.
-8-
<PAGE>
Other. The Credit Agreement will provide for an uncommitted
-----
Tranche C term loan facility in an amount to be agreed upon,
to be provided in the future to fund Permitted Acquisitions
(as hereinafter defined).
Use of Proceeds: The proceeds of all Term Loans shall be used to consummate
at the Closing the Acquisition and to pay related fees and
expenses (in an aggregate amount for such uses not to exceed
$145.0 million).
The Revolving Credit Facility will be available solely to
provide for general corporate purposes of the Borrower and
its subsidiaries after consummation of the Acquisition
(which shall not include, directly or indirectly, the
payment of any portion of the Acquisition Consideration,
refinancing fees or expenses), including to make up to an
aggregate of $25 million of Permitted Acquisitions and,
subject to a $5 million sublimit, to issue standby letters
of credit.
Availability: Revolving Loans may be borrowed, repaid and reborrowed on or
after the Closing Date.
Guaranty: All obligations under the Senior Bank Financing shall be
unconditionally guaranteed by Coinmach Laundry Corporation
("CLC") and present or future subsidiaries of CLC
(collectively, the "Guarantors").
Security: The obligations of the Borrower shall be secured by a first
priority perfected security interest in substantially all
the assets of the Borrower and each of its direct and
indirect subsidiaries and the capital stock of the
Borrower's subsidiaries. The obligations of the Guarantors
shall be secured by a first priority perfected security
interest in substantially all of the assets of CLC and each
of its direct or indirect subsidiaries now owned or
hereinafter acquired including the capital stock of the
Borrower held by CLC.
Interest Rates: At the option of the Borrower, Loans under the Senior Bank
- --------------
Financing may be maintained from time to time as (x) Base
Rate Loans
-9-
<PAGE>
which shall bear interest at the Applicable Margin in excess
of the Base Rate in effect from time to time or (y)
Eurodollar Loans which shall bear interest at the Applicable
Margin in excess of the Eurodollar Rate (adjusted for
maximum reserves) as determined by the Arrangers for the
respective interest period.
"Base Rate' shall mean the higher of (x) 1/2 of 1% in
excess of the Federal Reserve reported certificate of
deposit rate and (y) the rate that BTCo announces from time
to time as its prime lending rate, as in effect from time to
time.
Eurodollar Loans (other than those based upon one-month
LIBOR) will not be available until the earlier of 90 days
after the Closing or the date the Arrangers have determined
that the initial syndication of the Credit Facilities has
been completed.
"Applicable Margin" for the Senior Bank Financing shall mean
a per annum percentage adjusted in accordance with the
following pricing grid which is a function of CLC's Total
Consolidated Debt to Consolidated EBITDA ratio (the
"Leverage Ratio') (which shall be tested quarterly and
measured on a trailing twelve months basis). Consolidated
EBITDA shall be defined as net income adjusted for typical
non-cash charges including but not limited to non-cash
charges relating to employee stock options and will further
provide for pro forma adjustments relating to the conforming
of accounting practices of acquired entities with those of
CLC.
Eurodollar Applicable Leverage
Margin Ratio
--------------------- --------
R/C Term A Term B
--- ------ ------
2.50% 2.50% 3.00% greater than 4.25
2.25% 2.25% 2.75% between 4.0 and 4.25
2.00% 2.00% 2.75% between 3.5 and 4.0
1.75% 1.75% 2.75% between 3.0 and 3.5
1.50% 1.50% 2.75% less than 3.0
-10-
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The Applicable Margin for Base Rate Loans shall be based on
the Leverage Ratio and shall be 1% lower than the Applicable
Margin for Eurodollar Loans shown above.
Interest periods of 1, 2, 3 and 6 months shall be available
in the case of Eurodollar Loans.
The Senior Bank Financing shall include BTCo's standard
protective provisions for such matters as defaulting banks,
capital adequacy, increased costs, actual reserves, funding
losses, illegality and withholding taxes.
Interest in respect of Base Rate Loans shall be payable
quarterly in arrears on the last business day of each fiscal
quarter. Interest in respect of Eurodollar Loans shall be
payable in arrears at the end of the applicable interest
period and every three months in the case of interest
periods in excess of three months. Interest will also be
payable at the time of repayment of any Loans and at
maturity. All interest and commitment fee and other fee
calculations shall be based on a 360-day year and actual
days elapsed.
Overdue principal and interest shall bear interest at a rate
per annum equal to the greater of (i) the rate which is 2%
in excess of the rate otherwise applicable to Base Rate
Loans from time to time and (ii) the rate which is 2% in
excess of the rate then borne by such borrowings. Such
interest shall be payable on demand.
Voluntary
Prepayments: Voluntary prepayments may be made, in whole or in part,
subject to limitations as to minimum amounts or prepayments,
at any time with prior notice but without premium or
penalty, provided that voluntary prepayments of Eurodollar
Loans may only be made subject to payment of applicable
breakage costs.
Optional Commitment
Reductions: The unutilized portion of the total commitment under the
Revolving Credit Facility may be reduced or terminated by
the Borrower at
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<PAGE>
any time without penalty.
Mandatory
Prepayments: Mandatory prepayments of the Senior Bank Financing shall be
required from (in each case with certain customary
exceptions to be agreed upon) (a) 100% of the cash proceeds
from asset sales of CLC and/or its subsidiaries (other than
sales of equipment in the ordinary course of business to the
extent the proceeds of which (not in excess of an annual
amount to be agreed upon) are reinvested in the business),
(b) 50% of the net cash proceeds from issuances of debt or
equity securities of CLC and/or its subsidiaries (excluding
(w) proceeds used for Permitted Acquisitions (as defined
herein), (x) proceeds which are used to repay the CLC Notes,
(y) proceeds which are used to repay the 12-3/4% Senior
Notes due 2001 (the "12-3/4% Notes") and (z) up to $15
million of net cash proceeds of equity securities or
subordinated obligations of CLC, if, in the case of this
clause (z) (i) no Event or Event of Default exists or is
continuing, (ii) the debt securities mature after September
30, 2004, (iii) the amortization requirements of the
subordinated obligations are on terms satisfactory to the
Arrangers and (iv) the proceeds of the debt securities are
provided by a strategic investor, (c) 100% of certain
insurance proceeds and (d) 75% of annual Excess Cash Flow
(to be defined) which shall be reduced to 50% if and so long
as the Leverage Ratio is less than or equal to 3.0. All such
prepayment amounts shall be applied first to the prepayment
of Term Loans and thereafter to the prepayment of Revolving
Loans and the reduction of commitments thereunder. All such
mandatory prepayments of Term Loans shall be applied ratably
to the Tranche A Term Loans and the Tranche B Term Loans and
shall be applied ratably to the scheduled installments
thereof.
Notwithstanding the foregoing, in the case of any mandatory
prepayment to be applied to the Tranche B Term Loans, the
Borrower may elect to offer the holders thereof the
opportunity to waive the right to receive the amount of such
mandatory prepayment. In the event any
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<PAGE>
such holders elect to waive such right, all of such amount
that would otherwise have been applied as a mandatory
prepayment of the Tranche B Term Loans of such holders shall
be applied to the prepayment of the Tranche A Term Loans.
Administrative Agent/
Syndication Agent/
Documentation Agent/
Lender Fee: The Administrative Agent, the Syndication Agent, the
Documentation Agent and the Lenders shall receive such fees
as have been separately agreed upon with the Arrangers.
Commitment Fees: 1/2 of 1% per annum of the unutilized total commitments
under the Revolving Credit Facility as in effect from time
to time, commencing on the Closing Date and continuing to
and including the termination of the Senior Bank Financing,
payable in arrears quarterly and upon the termination of the
Senior Bank Financing. At any time after the Closing Date
during which no Default or Event of Default exists and the
Leverage Ratio is less than 3.0 to 1.0, the Commitment Fee
shall be 3/8 of 1%.
Letter of Credit
Fees: Applicable Margin for Eurodollar Loans under the Revolving
Credit Facility on the aggregate outstanding stated amounts
of letters of credit plus an additional 1/4 of 1% on the
aggregate outstanding stated amounts of letters of credit to
be paid as a fronting fee to the issuing Lender.
Documentation: The Lenders' commitments will be subject to the negotiation,
execution and delivery of definitive financing agreements
(and related security documentation, guaranties, etc.) (the
"Financing Documents") consistent with the terms of this
letter, in each case prepared by Cahill Gordon & Reindel,
counsel to the Arrangers. All documentation shall be
governed by New York law.
Conditions
Precedent: In addition to conditions precedent typical for these types
of facilities and any other conditions appropriate in the
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<PAGE>
context of the proposed transaction, the following
conditions shall apply:
A. To the Initial
--------------
Funding
-------
(i) The structure and all terms of, and the
documentation for, the Acquisition (and the tax
implications relating thereto to the Borrower) shall
be reasonably satisfactory to the Arrangers and such
transactions shall have been, or shall
simultaneously be, consummated on terms reasonably
satisfactory to the Arrangers.
(ii) The CLC Notes shall have terms and conditions
satisfactory to the Arrangers.
(iii) All necessary governmental and third party approvals
in connection with the transactions contemplated by
the Senior Bank Financing and otherwise referred to
herein shall have been obtained and remain in
effect, and all applicable waiting periods shall
have expired without any action being taken by any
competent authority which restrains, prevents, or
imposes materially adverse conditions upon, the
consummation of the transactions contemplated by the
Senior Bank Financing or otherwise referred to
herein.
(iv) Nothing shall have occurred (and the Lenders shall
have become aware of no facts or conditions not
previously known) which the Arrangers or the
Required Lenders shall reasonably determine could
have a material adverse effect on the rights or
remedies of the Lenders or the Arrangers, or on the
ability of the Borrower and its subsidiaries, both
before and after giving effect to the Acquisition,
to perform their obligations to the Lenders or which
could have a materially adverse effect on the
business, property
-14-
<PAGE>
assets, nature of assets, liabilities, condition
(financial or otherwise) or prospects of the
Borrower or the Borrower and its subsidiaries, both
before and after giving effect to the Acquisition,
taken as a whole after giving effect to the
transactions contemplated by the Senior Bank
Financing or otherwise referred to herein.
(v) No litigation by any entity (private or
governmental) shall be pending or threatened with
respect to the Acquisition, the Senior Bank
Financing, the transactions contemplated by the
Senior Bank Financing or any documentation executed
in connection therewith or which the Arrangers or
the Required Lenders shall reasonably determine
could have a materially adverse effect on the
business, property, assets, nature of assets,
liabilities, condition (financial or otherwise) of
the Borrower or the Borrower and its subsidiaries
taken as a whole.
(vi) The Lenders shall have received legal opinions from
counsel covering matters reasonably acceptable to
the Arrangers and the Required Lenders.
(vii) All organizational documents of the Borrower and its
subsidiaries shall be reasonably satisfactory to the
Arrangers and the Required Lenders.
(viii) All Loans and other financings to the Borrower shall
be in full compliance with all applicable
requirements of the margin regulations.
(ix) All reasonable costs, fees, expenses (including,
without limitation, legal fees and expenses) and
other compensation contemplated hereby payable to
the Lenders, shall have been paid to the extent due.
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<PAGE>
(x) The Lenders shall have a perfected first priority
security interest in substantially all the assets of
the Borrower and each of its direct and indirect
subsidiaries including the capital stock of the
Borrower's subsidiaries. The Lenders shall also
have a perfected first priority security interest in
substantially all the assets of CLC and each of its
direct and indirect subsidiaries including the
capital stock of the Borrower held by CLC.
(xi) At the Initial Funding, CLC and its subsidiaries
shall have no long-term indebtedness except the
Senior Bank Financing, the 11-3/4% Senior Notes due
2005, the 12-3/4% Notes, the CLC Notes, certain
other indebtedness satisfactory to the Arrangers and
other indebtedness to be mutually agreed upon and
CLC and its subsidiaries shall be in compliance with
all material provisions of all such indebtedness.
(xii) The Arrangers shall have received environmental and
hazardous substance analyses in scope, and in form
and substance, reasonably acceptable to the
Arrangers.
(xiii) The Arrangers shall have (x) completed and be
reasonably satisfied with the results of their
legal, tax and accounting due diligence and (y)
confirmed the results of their substantially
completed business due diligence.
(xiv) The Arrangers shall have received (i) unaudited
financial statements of the Borrower and its
subsidiaries for the six-month period ended
September 30, 1996 and of KWIK Wash and its
subsidiaries for the nine-month period ended
September 30, 1996 and, to the extent available, any
additional fiscal periods ended prior to the Closing
Date (including,
-16-
<PAGE>
without limitation, monthly
financial statements for any such period of less
than three months), (ii) a pro forma balance sheet
--- -----
of CLC and the Borrower and their respective
subsidiaries as of the Closing Date after giving
effect to the Acquisition and the financings
contemplated hereby, and (iii) final projected
financial statements (including balance sheets and
statements of operations, stockholders' equity and
cash flows) of CLC and the Borrower and their
respective subsidiaries for the five-year period
after the Closing Date, all of the foregoing to be
in form and substance satisfactory to the Arrangers
and the Lenders.
(xv) There shall have been no material adverse change
after the date hereof to the syndication market for
credit facilities similar in nature to the Senior
Bank Financing contemplated herein and there shall
not have occurred and be continuing a material
disruption of or material adverse change in
financial, banking or capital markets that would
have a material adverse effect on the syndication,
in each case as determined by the Arrangers in their
reasonable discretion. The Borrower and its
advisors shall have fully cooperated in the
syndication efforts, including without limitation by
promptly providing the Arrangers with all
information deemed necessary by it to successfully
complete the syndication.
B. Conditions to All
-----------------
Borrowings
----------
Absence of material adverse change, absence of material
litigation, absence of default or unmatured default under
the Senior Bank Financing, continued accuracy in all
material respects of representations and warranties
-17-
<PAGE>
and receipt of such documentation as shall be reasonably
required by the Arrangers.
Representations and
Warranties: The Senior Bank Financing and related documentation shall
contain representations and warranties typical for these
types of facilities, as well as any additional ones
appropriate in the context of the proposed transaction.
Covenants: Those typical for these types of facilities and applicable
to the Guarantors, the Borrower and their subsidiaries, and
any additional covenants appropriate in the context of the
proposed transaction (with such covenants having such
exceptions or baskets as may be mutually agreed upon).
Although the covenants have not yet been specifically
determined, we anticipate that the covenants shall in any
event include:
(i) Restrictions on other indebtedness.
(ii) Restrictions on mergers, acquisitions, joint
ventures, partnerships and acquisitions and
dispositions of assets, subject to exceptions and
baskets to be mutually agreed. Acquisitions by CLC
and its subsidiaries of companies that operate in
CLC's current lines of business ("Permitted
Acquisitions") will be permitted so long as no
Default or Event of Default exists (or will result
from such acquisitions) and pro forma for such
acquisitions and the financings incurred in
connection therewith, and (A) (x) CLC's Consolidated
Senior Secured Debt to Consolidated Adjusted EBITDA
ratio ("Consolidated Adjusted EBITDA" shall mean
Consolidated EBITDA measured on a trailing 12-month
basis, with certain cost-savings adjustments (i)
made in-accordance with Regulation S-X, (ii)
approved by Ernst & Young and (iii) not in excess of
10% of pro forma actual reported Consolidated
EBITDA) (the "Consolidated Adjusted Senior
-18-
<PAGE>
Leverage Ratio") is less than 2.25 and (y) CLC's
Consolidated Total Debt to Consolidated Adjusted
EBITDA ratio ("Consolidated Adjusted Leverage
Ratio") is less than 4.50 and (B) any Permitted
Acquisition is made through either (i) the use of
cash on hand at CLC, (ii) the use of borrowings
under the Revolving Credit Facility not to exceed
$25.0 million in the aggregate or (iii) as to any
acquisition or acquisitions consummated within one
year of the Closing Date, the proceeds of either
debt or equity securities for which the total
consideration for such acquisition or acquisitions
does not exceed $200.0 million in the aggregate,
provided, however, that in any single acquisition or
series of related acquisitions funded under either
subclause (i) or (ii) of this clause (B), the total
consideration does not exceed $20.0 million;
and, provided further, that any acquisition
-------- -------
or acquisitions funded under subclause (iii) of this
clause (B) shall be on terms reasonably satisfactory
to the Arrangers; and, provided further, that to
-------- -------
the extent any such acquisition or acquisitions
funded under subclause (iii) of this clause (B) is
not made by the Borrower or any of its subsidiaries
or is not contributed by CLC to either the Borrower
or any of its subsidiaries, neither the Borrower nor
any of its subsidiaries shall incur any Indebtedness
(including Guarantees) with respect thereto.
(iii) Restrictions on sale-leaseback transactions subject
to certain permitted exceptions.
(iv) Restrictions on dividends and amendments of
organizational, corporate and other documents.
(v) Restrictions on voluntary prepayments of other
indebtedness (other than, as
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<PAGE>
long as no Default or Event of Default exists, the
prepayment of the CLC Notes and the 12 3/4% Notes
made with the net cash proceeds from the issuance of
debt or equity securities by CLC or any of its
subsidiaries).
(vi) Restrictions on transactions with affiliates and
formation of subsidiaries.
(vii) Restrictions on investments.
(viii) Maintenance of existence and properties.
(ix) No liens, with exceptions to be negotiated.
(x) Various financial covenants applicable to CLC, on a
consolidated basis, customary for a transaction of
this type (including, without limitation, minimum
interest and fixed charge coverage ratios, minimum
EBITDA, maximum capital expenditures and maximum
leverage ratio).
(xi) Adequate insurance coverage.
(xii) ERISA covenants.
(xiii) The obtaining of interest rate protection in amounts
and for periods to be determined.
(xiv) Restriction of line of business.
(xv) Financial reporting.
(xvi) Compliance with laws.
Events of Default: Those typical for these types of facilities and any
additional ones appropriate in the context of the proposed
transaction including, without limitation, a change of
control of the Borrower or CLC.
Assignments and
Participations: The Borrower may not assign its rights or obligations under
the Senior Bank Financing
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<PAGE>
without the prior written consent of the Lenders. Any Lender
may assign all, or, in an amount of not less than $5
million, any part of, and may sell participations in, its
rights and obligations under the Senior Bank Financing,
subject (x) in the case of participations, to customary
restrictions on the voting rights of the participants and
(y) in the case of assignments, to such limitations as may
be established by the Arrangers. The Senior Bank Financing
shall provide for a mechanism which will allow for each
assignee to become a direct signatory to the Senior Bank
Financing and will relieve the assigning Lender of its
obligations with respect to the assigned portion of its
commitment.
Required Lenders: Majority.
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<PAGE>
EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
by and among
each of the parties listed on Schedule A attached hereto
collectively, as "Sellers",
KWL, Inc. and Kwik-Wash Laundries, Inc.
together, the "Partners",
Kwik Wash Laundries, L.P.
the "Partnership"
and
Coinmach Corporation
as "Buyer"
November 25, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS................................................. 1
1.1 Defined Terms. ........................................ 1
1.2 Other Defined Terms.................................... 9
ARTICLE 2 PURCHASE AND SALE OF STOCK.................................. 10
2.1 Transfer of Stock...................................... 10
2.2 Consideration for Stock................................ 10
2.3 Purchase Price Adjustments............................ 11
2.4 Escrow Agreement...................................... 13
ARTICLE 3 CLOSING..................................................... 14
3.1 Closing................................................ 14
3.2 Deliveries............................................. 14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
OF SELLERS, PARTNERS AND THE PARTNERSHIP.................... 14
4.1 Organization of Sellers................................ 14
4.2 Organization of Partners............................... 15
4.3 Capitalization of the Partners......................... 15
4.4 Organization of the Partnership........................ 16
4.5 Capitalization of the Partnership...................... 16
4.6 Authorization; Binding Effect.......................... 16
4.7 No Conflict or Violation............................... 17
4.8 Absence of Certain Changes or Events................... 17
4.9 Title to Assets, etc................................... 20
4.10 Condition of Tangible Assets.......................... 21
4.11 Contracts and Commitments............................. 21
4.12 Location Contracts and Laundromat Leases.............. 24
4.13 Consents and Approvals................................ 24
4.14 Financial Statements.................................. 25
4.15 Litigation............................................ 25
4.16 Labor Matters......................................... 25
4.17 Liabilities........................................... 26
4.18 Compliance with Law................................... 26
4.19 No Brokers............................................ 26
4.20 No Other Agreements to Sell the Stock,
Partnership Interests, Assets or the Partnership...... 26
4.21 Proprietary Rights.................................... 27
4.22 Employee Benefit Plans................................ 27
4.23 Transactions with Certain Persons..................... 31
4.24 Tax Matters........................................... 31
4.25 Severance Arrangements................................ 33
4.26 Insurance............................................. 34
4.27 Payments.............................................. 34
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<PAGE>
4.28 Customers and Suppliers............................... 34
4.29 Accounts Receivable................................... 35
4.30 Compliance with Legislation Regulating
Environmental Quality................................. 35
4.31 Misstatements or Omissions............................ 37
4.32 Key Personnel......................................... 37
4.33 Solvency.............................................. 37
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER..................... 37
5.1 Organization of Buyer.................................. 37
5.2 Authorization.......................................... 38
5.3 Consents and Approvals................................ 38
5.4 No Brokers............................................ 38
5.5 No Conflict or Violation............................... 38
ARTICLE 6 ACTIONS BY SELLERS, THE PARTNERS,
THE PARTNERSHIP AND BUYER PRIOR TO THE CLOSING.............. 38
6.1 Maintenance of Business............................... 38
6.2 Obstruction of Purpose................................. 39
6.3 Certain Prohibited Transactions........................ 39
6.4 Investigation by Buyer................................. 41
6.5 Consents and Best Efforts.............................. 41
6.6 Modification of Excluded Contracts..................... 41
6.7 Notification of Certain Matters........................ 42
6.8 HSR Act Approval....................................... 42
6.9 Exclusivity........................................... 42
6.10 Title-Link Disposition................................ 43
6.11 Payment of Certain Accrued Liabilities................ 43
6.12 Kwik Wash Profit Sharing Plan......................... 43
6.13 Resignation of Certain Employees...................... 43
ARTICLE 7 CONDITIONS TO SELLERS' OBLIGATIONS.......................... 44
7.1 Representations, Warranties and Covenants............. 44
7.2 Consents.............................................. 44
7.3 No Governmental Proceeding or Litigation.............. 44
7.4 Certificates.......................................... 44
7.5 Corporate Documents................................... 44
7.6 HSR Act............................................... 44
7.7 Compliance with Legal Requirements.................... 45
7.8 Opinion of Counsel.................................... 45
7.9 Tax Cooperation Agreement.............................. 45
7.10 Agreement Among Creditors.............................. 45
7.11 Purchase and Sale of Dallas Property................... 45
ARTICLE 8 CONDITIONS TO BUYER'S OBLIGATIONS........................... 46
8.1 Representations, Warranties and Covenants............. 46
8.2 Consents.............................................. 46
8.3 No Governmental Proceeding or Litigation.............. 46
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<PAGE>
8.4 Compliance with Legal Requirements.................... 46
8.5 Opinion of Counsel.................................... 46
8.6 Certificates and Corporate Documents.................. 47
8.7 HSR Act............................................... 47
8.8 Disclosure Schedules.................................. 48
8.9 Balance Sheet and Financial Statements................ 48
8.10 Termination of Excluded Contracts..................... 48
8.11 Due Diligence......................................... 48
8.12 Consulting Agreement.................................. 48
8.13 Escrow Agreement...................................... 48
8.14 FIRPTA Certificates................................... 48
8.15 Payout Letter and Release............................. 48
8.16 Renewal Options on Laundromat Leases.................. 49
8.17 Facility Leases....................................... 49
8.18 Purchase and Sale of Dallas Property.................. 50
8.19 Tax Cooperation Agreement............................. 50
8.20 Change of Control Agreement........................... 51
ARTICLE 9 COVENANT NOT TO COMPETE..................................... 51
9.1 Covenant Not to Compete............................... 51
9.2 Tax Allocation......................................... 52
9.3 Permitted Activities................................... 52
9.4 Irreparable Damage Upon Breach......................... 53
9.5 Payment Default Under the Note......................... 53
ARTICLE 10 ACTIONS BY THE KWIK WASH ENTITIES
AND BUYER AFTER THE CLOSING................................. 53
10.1 Books and Records..................................... 53
10.2 Further Assurances.................................... 53
10.3 Pro Forma Tax Basis.....................................53
ARTICLE 11 INDEMNIFICATION............................................. 54
11.1 Survival of Representations, etc...................... 54
11.2 Indemnification....................................... 54
11.3 Indemnification Procedures............................ 55
11.4 Exclusive Remedy...................................... 57
11.5 Insurance Proceeds.................................... 57
11.6 No Right of Contribution.............................. 57
11.7 Characterization of Indemnity......................... 57
ARTICLE 12 MISCELLANEOUS............................................... 58
12.1 Termination........................................... 58
12.2 Assignment............................................ 59
12.3 Notices; Transfer of Funds............................ 59
12.4 Choice of Law; Service of Process..................... 60
12.5 Entire Agreement; Amendments and Waivers.............. 61
12.6 Counterparts.......................................... 61
12.7 Invalidity............................................ 61
12.8 Headings.............................................. 61
12.9 Singulars and Plurals................................. 61
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<PAGE>
12.10 Expenses.............................................. 61
12.11 Publicity............................................. 61
12.12 Remedies.............................................. 62
12.13 Risk of Loss.......................................... 62
12.14 Confidential Information.............................. 62
12.15 Litigation Costs...................................... 63
EXHIBITS
Exhibit A - Excluded Contracts
Exhibit B - Promissory Note
Exhibit C - Escrow Agreement
Exhibit D - Tax Cooperation Agreement
Exhibit E - Form of Consulting Agreement
Exhibit F - List of Certain Personnel
SCHEDULES
Schedule A - List of Sellers
Schedule 1.1(A) - Balance Sheets
Schedule 1.1(B) - Financial Statements
Schedule 6.3 - Certain Assets of the Partnership
Schedule 8.16 - Related Party Laundromat Lease Rent Rates
Schedule 8.17 - Facility Lease Rent Rates
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<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
Preamble
--------
This Stock Purchase Agreement, dated as of November 25, 1996, is
entered into by and among Kwik Wash Laundries, L.P., a Texas limited
partnership (the "Partnership"), KWL, Inc., a Nevada corporation and sole
general partner of the Partnership (the "GP"), Kwik-Wash Laundries, Inc., a
Nevada corporation and sole limited partner of the Partnership (the "LP" and,
together with the GP, the "Partners"), Coinmach Corporation, a Delaware
corporation or its designee (the "Buyer"), and each of the parties listed on
Schedule A attached to this Agreement (each, a "Seller" and, collectively,
the "Sellers").
RECITALS
--------
A. Sellers collectively own all of the issued and outstanding
shares of common stock, par value $.10 per share, of GP (the "GP Stock") and
all of the issued and outstanding shares of common stock, par value $1.00 per
share, of LP (the "LP Stock" and, together with the GP Stock, the "Stock"),
constituting all of the issued and outstanding capital stock of the Partners.
B. The Partnership currently engages in, among other things,
the businesses of (i) providing coin-operated and non coin-operated laundry
equipment services to customers in multi-family dwellings; (ii) operating,
maintaining and servicing laundromat retail stores; and (iii) the sale of
Parts (as hereinafter defined) (the foregoing, together with all other
businesses, activities, divisions and operations of the Partners and the
Partnership and their respective Affiliates (as hereinafter defined) the
"Business").
C. Buyer desires to purchase from Sellers, and Sellers desire
to transfer to Buyer, all of the Stock, subject to the terms and conditions
of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. As used in this Agreement, the terms below shall
-------------
have the following meanings:
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<PAGE>
"Adverse Effect" shall mean a materially adverse effect on any of
--------------
the Business, the Sale, the Stock, the Partnership Interests, liabilities,
Assets, working capital, earnings, condition (financial or otherwise),
operating results, prospects, or employee, customer or supplier relations of
the Partnership, or the ability of the Partnership, any Partner or any Seller
to perform its respective obligations under the Transaction Documents or the
ability of the Partnership or any Partner to conduct the Business as
presently conducted or as proposed to be conducted.
"Agreement" shall mean this Stock Purchase Agreement, dated as of
---------
November 25, 1996, by and among Buyer, Sellers, the Partners and the
Partnership, as such Agreement may be amended from time to time.
"Affiliate" as applied to any Person, means any other Person
---------
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by" and "under
common control with"), as applied to any Person, shall mean (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by contract or otherwise, or (b) ownership,
directly or indirectly, of 10% or more of the Equity Interests of such Person.
"Balance Sheet Date" shall mean December 31, 1995.
------------------
"Balance Sheet" shall mean the combined audited balance sheet of
-------------
the Partners as of December 31, 1995, together with the notes thereon and the
related unqualified report of Ernst & Young LLP, the certified public
accountants for the Partners, previously delivered to Buyer and attached
hereto as Schedule 1.1(A).
"Business" shall have the meaning assigned to such term in
--------
Recital B to this Agreement.
"Buyer" shall have the meaning assigned to such term in the
-----
Preamble to this Agreement.
"Buyer's Expenses" shall mean all costs and expenses incurred by
----------------
Buyer in connection with the negotiation, preparation, execution and delivery
of the Transaction Documents and the consummation of the transactions
contemplated thereby, including without limitation, paying any filing fees
required under the HSR Act.
"CLC" shall mean Coinmach Laundry Corporation, a Delaware
---
corporation and the holder of all of the outstanding capital stock of Buyer.
- 2 -
<PAGE>
"Closing Date" shall mean the close of business on January 8,
------------
1997, or such other date as may be mutually agreed upon in writing by the
Parties.
"Code" shall mean the Internal Revenue Code of 1986, as amended
----
and as it may be further amended from time to time.
"Consenting Party" shall mean any Person whose consent or waiver
----------------
is or may be required under any Contract in connection with the Transaction
Documents or any of the transactions contemplated thereby.
"Contracts" shall mean any and all of the agreements, contracts
---------
(including without limitation the Excluded Contracts and the Location
Contracts), Leases (including, without limitation, the Laundromat Leases) or
commitments of the Partnership or any of the Partners described in the
Disclosure Schedule and any of the agreements, contracts, leases or
commitments of the Partnership or any of the Partners not required to be
described in the Disclosure Schedule solely because of the size or duration
limitations on contracts required to be scheduled by this Agreement.
"Customer" means any customer or prospective customer of the
--------
Partnership, including without limitation, landlords, owners and management
companies of multi-family dwellings, laundromat customers, and purchasers of
Parts and laundry equipment or related services from the Partnership.
"Disclosure Schedule" shall mean a schedule executed by the
-------------------
Partnership, the Partners and each of the Sellers and delivered to Buyer on
or prior to the date hereof, which sets forth exceptions to the
representations and warranties contained in Article 4 hereof and certain
other information called for by Article 4 hereof and other provisions of this
Agreement and which hereby is made a part of this Agreement and incorporated
herein by reference, as such schedule may be updated pursuant to Section 8.8.
"Encumbrances" shall mean any claim, mortgage, deed of trust,
------------
restrictive covenant, reservation, lien, pledge, option, charge, easement,
security interest, right-of-way, encumbrance of any kind or other adverse
claims, or voting or other rights, of third parties (including, without
limitation, preemptive rights), whether or not filed, recorded or otherwise
perfected under applicable law, as well as the interest of any vendor, vendee
or lessor or lessee under any conditional sales agreement, capital lease or
other title retention agreement.
"Environmental Liabilities" shall include any liabilities,
-------------------------
damages, costs, expenses (including without limitation, attorneys',
engineers' and consultants' fees and any expenses incurred in enforcing any
applicable provisions of this Agreement), judicial or administrative actions
or proceedings,
- 3 -
<PAGE>
Encumbrances, claims, fines, penalties, impositions, losses or lost income
arising under, from, or in relation to (i) any Environmental and Safety
Requirements; (ii) the presence of any Hazardous Substance at, on, under or
nearby any Facility or former Facility; (iii) any Release or threatened Release;
or (iv) the exposure or alleged exposure of any Person, animal, aquatic life or
property to any Hazardous Substance.
"Environmental and Safety Requirements" shall mean and refer to
-------------------------------------
all applicable federal, state, local and foreign statutes, regulations,
ordinances and similar provisions having the force or effect of law, all
judicial and administrative orders and determinations, all contractual
obligations and all common law concerning public health and safety, worker or
occupational health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transport, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, Release,
threatened Release, control, or cleanup of any Hazardous Substance.
"Equity Interests" shall mean the capital stock, partnership
----------------
interests or other equity interests (including the Stock and the Partnership
Interests) or options, warrants, rights to subscribe to, scrip calls,
contracts, undertakings, arrangements, commitments to issue or other rights
of any kind to acquire capital stock, partnership interests or other equity
interests of any Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended.
"Escrow Agreement" shall have the meaning assigned to such term
----------------
in Section 2.2 of this Agreement.
"Excluded Contracts" shall mean those certain Contracts attached
------------------
hereto as Exhibit A.
"Facilities" shall mean the Locations, plants, office locations,
----------
self-storage facilities, re-manufacturing facilities, warehouses,
administration, office and other buildings and all other property and related
facilities which are owned or leased by the Partnership, the Partners or the
Sellers on behalf of any Partner or the Partnership and identified on the
Disclosure Schedule.
"Financial Statements" shall mean the Balance Sheet and the
--------------------
related audited combined statements of income and combined statements of
stockholders' equity, retained earnings and changes in financial position or
cash flows for each Partner for the twelve (12) month period ended as of the
Balance Sheet Date, together with the notes thereon and the related
unqualified report of Ernst & Young LLP, the certified public accountants of
- 4 -
<PAGE>
the Partners, previously delivered to Buyer and attached hereto as Schedule
1.1(B).
"Fixtures and Equipment" shall mean any and all of the furniture,
----------------------
fixtures, furnishings, machinery (including Machines and Parts) and equipment
owned or leased by the Partnership or the Partners or any of their
Representatives on behalf of the Partnership and located in, at or upon the
Facilities as of the Balance Sheet Date, plus all additions and replacements
since the Balance Sheet Date to the Closing Date.
"GP" shall have the meaning assigned to such term in the Preamble
--
to this Agreement.
"GP Interests" shall mean all of the general partnership
------------
interests of the Partnership.
"Hazardous Substance" shall mean any pollutants, dangerous
-------------------
substances, contaminants (including without limitation, asbestos, oil, petroleum
or petroleum-containing substances, products or byproducts, lead-based paint,
solid waste, radiation, methane gas, Formaldehyde, radioactive waste, chemical
substances or mixtures, pesticides, pollutants, contaminants, radon,
polychlorinated biphenyls ("PCBs")), toxic substances or chemicals, hazardous or
otherwise regulated materials, substances or wastes, or hazardous substances as
defined (now or at any time) in or pursuant to the Resource Conservation and
Recovery Act (42 U.S.C. (SS) 6901, et seq.) ("RCRA"), the Comprehensive
------
Environmental Response, Compensation and Liability Act (42 U.S.C. (SS) 9601, et
--
seq.) ("CERCLA"), the Clean Air Act (42 U.S.C. Section 7401, et seq.), the Clear
- --- ------
Water Act (42 U.S.C. (SS) 1251, et seq.), the Toxic Substances Control Act (15
------
U.S.C. (SS) 2601 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
------
(SS)1251 et seq.), the Safe Drinking Water Act (21 U.S.C. (SS)349, 42 U.S.C.
------
(SS) 201, 300f), the Toxic Substances Control Act (15 U.S.C. (SS)2601 et seq.),
------
the Texas Water Code (Title II, Ch. 26 (SS) 26.001 et seq., 26.263(4), 26.301 et
------ --
seq. or as elsewhere defined in the Texas Water Code) and any other applicable
- ---
Environmental and Safety Requirement.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements
-------
Act of 1976, as amended.
"Indebtedness" shall mean, with respect to any Person, (a)
------------
indebtedness for borrowed money or for the deferred purchase price of
property or services in respect of which such Person is liable, contingently
or otherwise, as obligor or otherwise and any commitment by which such Person
insures a creditor against loss, including contingent reimbursement
obligations with respect to letters of credit, (b) indebtedness guaranteed in
any manner by such Person, including a guarantee in the form of an agreement
to repurchase or reimburse, (c) obligations under capitalized leases in
respect of which such Person is liable, contingently or otherwise, as
obligor, guarantor or otherwise, or in respect of
- 5 -
<PAGE>
which obligations such Person insures a creditor against loss, and (d) any
unsatisfied obligation of such Person for "withdrawal liability" to a "multi-
employer plan," as such terms are defined under ERISA.
"Investment" shall mean, with respect to any Person, (a) any
----------
direct or indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or other ownership or beneficial
interest (including partnership interests and joint venture interests) of any
other Person, and (b) any capital contribution by such Person to any other
Person.
"Kwik Wash Entities" shall mean, collectively, each of the
------------------
Sellers, the Partners and the Partnership.
"Laundromat Leases" shall mean all Leases pursuant to which the
-----------------
Partnership or any Partner rents commercial or retail property for the
purpose of operating self-service laundry businesses or stores commonly known
as "laundromats" and providing laundry equipment services related thereto,
which Leases are listed on the Disclosure Schedule.
"Leases" shall mean any and all of the leases (including the
------
Location Contracts and the Laundromat Leases) listed on the Disclosure
Schedule and all other leases relating to the Business which are not required
to be scheduled pursuant to this Agreement.
"Legal Requirement" shall mean any action, law, statute, treaty,
-----------------
rule, regulation, order, ordinance, judgment, injunction, decree, award,
determination or direction of an arbitrator or government entity, including
without limitation, any zoning, Environmental and Safety Requirement, motor
vehicle safety requirements or standards or any requirements arising
thereunder.
"Location" shall mean a laundromat, laundry room or similar
--------
location at which one or more On-Location Machines are installed pursuant to
a Location Contract or a Laundromat Lease.
"Location Contracts" shall mean all Leases pursuant to which the
------------------
Partnership or any Partner provides laundry equipment services to
multi-family dwellings in the course of the Business including, without
limitation, installation, maintenance or other services with respect to
On-Location Machines subject to such Leases, which Leases are listed on the
Disclosure Schedule.
"LP" shall have the meaning assigned to such term in the Preamble
--
to this Agreement.
"LP Interests" shall mean all of the limited partnership
------------
interests of the Partnership.
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<PAGE>
"Machines" shall mean any and all new, used or refurbished
--------
coin-operated or non-coin operated washing machines and dryers, soap
machines, card operated equipment, video or other interactive vending
machines, change makers and any other vending or similar equipment owned or
leased by any Partner or the Partnership.
"Motor Vehicles" shall mean any and all trucks, trailers, vans
--------------
and automobiles owned or leased by the Partnership, which vehicles shall be
listed on the Disclosure Schedule.
"NationsBank" shall mean NationsBank of Texas, N.A.
-----------
"On-Location Machines" shall mean those certain coin-operated and
--------------------
non coin-operated washing machines and dryers installed at Locations, as
listed on the Disclosure Schedule.
"Parties" shall mean the Buyer, and each of the Kwik Wash
-------
Entities.
"Partnership Interests" shall mean the GP Interests and the LP
---------------------
Interests constituting all of the outstanding partnership interests of the
Partnership.
"Parts" shall mean any and all Machine parts (whether new, used
-----
or refurbished) or other Machine equipment owned or leased by the Partnership
or otherwise used in connection with the Business.
"Permits" shall mean any and all of the licenses, permits and
-------
other Federal, state or local regulatory or governmental authorizations,
accreditations, approvals, waivers, consents, declarations or filings
necessary or required to enter into the Transaction Documents and to
consummate the transactions contemplated thereby or to conduct the Business
as presently conducted or as proposed to be conducted.
"Person" shall mean an individual, partnership, sole
------
proprietorship, corporation, association, joint stock company, limited
liability company, trust, joint venture, unincorporated organization,
governmental or regulatory authority or any other entity or organization of
any kind whatsoever.
"Proprietary Rights" shall mean any and all of the Partners' and
------------------
the Partnership's: (i) patents, patent applications, patent disclosures and
inventions (whether patentable or unpatentable) and any and all reissues,
continuations, continuations-in-part, extensions or reexaminations thereof;
(ii) trademarks, service marks (including, without limitation, the service
mark "Flexivend"), trade dress, trade names, logos and corporate or
partnership names, together with all goodwill associated therewith (including
the use of the Partnership's current partnership name and trade
- 7 -
<PAGE>
names and all translations, derivations and combinations of any of the
foregoing) and registrations and applications for registration thereof; (iii)
mask works and registrations and applications for registration thereof; (iv)
computer software, including data, data bases and documentation; (v) trade
secrets and other confidential information (including lists of and information
related to Locations, Customers, ideas, techniques, research and development
information, designs, plans, proposals, marketing plans and supplier lists and
information); and (vi) other intellectual property rights, whether or not
registered and in whatever form or medium.
"Release" shall mean the spilling, leaking, disposing,
-------
discharging, emitting, depositing, injecting, dumping, leaching, escaping or
other release of any Hazardous Substance, whether purposely, accidentally,
intended, unintended, knowingly, unknowingly, suddenly, over time, or
otherwise.
"Representative" shall mean, with respect to any Person, any
--------------
officer, director, partner, shareholder, principal, attorney, accountant,
consultant, financial advisor, agent, employee or other representative of
such Person.
"Sale" shall have the meaning assigned to such term in Section
----
2.1 to this Agreement.
"Seller" or "Sellers" shall have the meaning assigned to such
------ -------
term in the Preamble to this Agreement.
"Sellers' Expenses" shall mean all costs and expenses incurred by
-----------------
the Sellers, the Partners and the Partnership in connection with the
negotiation, preparation, execution and delivery of the Transaction Documents
and the consummation of the transactions contemplated thereby.
"Stock" shall have the meaning assigned to such term in Recital A
-----
to this Agreement.
"Tax" shall mean any federal, state, local, or foreign income,
---
gross receipts, license, payroll, employment, excise, severance, stamp,
occupational, premium, windfall profits, environmental (including taxes under
Section 59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security or similar, unemployment, disability, real
property, personal property, sales, use, Transfer Tax, registration, value
added, alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including without limitation any interest, penalty or addition
thereto, whether disputed or not.
"Tax Return" shall mean any return, declaration, report, claim
----------
for refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof,
whether arising out of the
- 8 -
<PAGE>
transactions contemplated by the Transaction Documents or otherwise.
"Title-Link" shall mean Title-Link, L.C., a Texas limited
----------
liability company engaged in the business of providing software and network
communications services to the title, mortgage and real estate industries.
"Transaction Documents" shall mean this Agreement and all
---------------------
exhibits, statements, schedules, instruments, certificates and other
documents and agreements to be entered into or delivered by any Person in
connection with the transactions contemplated to be consummated pursuant to
any of the foregoing.
"Transfer Taxes" shall mean any and all sales, use, transfer,
--------------
real property transfer, recording, gains, stock transfer and other similar
Taxes and fees, including without limitation any interest, penalty or
addition thereto, whether disputed or not.
1.2 Other Defined Terms. The following terms shall have the meanings
-------------------
assigned to such terms in the corresponding Sections of this Agreement set
forth below:
Term Section
1995 Assets ..................................................... 2.3
1995 Liabilities ................................................ 2.3
1995 Net Current Asset Value .................................... 2.3
1996 Assets ..................................................... 2.3
1996 Balance Sheet .............................................. 2.3
1996 Liabilities ................................................ 2.3
1996 Net Current Asset Value .................................... 2.3
401(k) Plan ..................................................... 6.12
A.A.A ........................................................... 2.3
accumulated funding deficiency .................................. 4.22
Acquisition Proposal ............................................ 6.9
Actions ......................................................... 4.15
Affiliate ....................................................... 4.22
Arbitrator ...................................................... 2.3
Assets .......................................................... 4.9
Benefit Arrangement ............................................. 4.22
Buyer's Indemnitees ............................................. 11.2
Change of Control Agreement ..................................... 6.3
Change of Control Payments ...................................... 6.3
Closing ......................................................... 3.1
Closing Disclosure Schedule ..................................... 8.8
Dallas Property ................................................. 7.11
Damages ......................................................... 11.2
Deficiency Amount ............................................... 2.3
Dispute ......................................................... 2.3
Employee Plan ................................................... 4.22
Escrow Agreement ................................................ 2.2
Escrowed Funds .................................................. 2.2
- 9 -
<PAGE>
Excluded Obligations ............................................ 2.3
Houston Facility Lease .......................................... 8.17
Indemnification Claim Notice .................................... 11.3
Indemnified Party ............................................... 11.3
Indemnifying Party .............................................. 11.3
Initial Facility Term ........................................... 8.17
Initial Laundromat Term ......................................... 8.16
Interim Financial Statements .................................... 8.9
Key Employees ................................................... 6.3
Lease Notice .................................................... 9.2
Lease Notice Period ............................................. 9.2
Multi-employer Plans ............................................ 4.22
Note ............................................................ 2.2
Other Related Party Facility
Leases ........................................................ 8.17
PBGC ............................................................ 4.22
Personnel ....................................................... 4.8
Proceeding ...................................................... 11.3
prohibited transaction .......................................... 4.22
Purchase Price .................................................. 2.2
Related Parties ................................................. 4.23
Related Party Contracts ......................................... 4.23
Related Party Laundromat
Lease(s) ...................................................... 8.16
reportable event ................................................ 4.22
Resigning Management Employees .................................. 6.13
Seller Laundromat Lease ......................................... 9.2
Sellers' Indemnitees ............................................ 11.2
Severance Plan .................................................. 10.2
Title IV Plan ................................................... 4.22
WARN Act ........................................................ 4.16
ARTICLE 2
PURCHASE AND SALE OF STOCK
--------------------------
2.1 Transfer of Stock. Upon the terms and subject to the conditions
-----------------
contained herein, and in reliance upon the representations, warranties,
covenants and indemnifications contained herein, each Seller hereby agrees to
sell, convey, transfer, assign and deliver to Buyer, and Buyer hereby agrees
to acquire from the Sellers, on the Closing Date, all of the Sellers' rights,
title and interest in, to and under the Stock.
2.2 Consideration for Stock
-----------------------
Upon the terms and subject to the conditions contained
herein, the purchase price (the "Purchase Price") for the Stock and for the
covenants of the Kwik Wash Entities set forth in this Agreement shall be
comprised of: (i) $125,000,000, which shall be payable in immediately
available funds to Sellers at the Closing; and (ii) a promissory note in an
aggregate principal amount of $15,000,000 (the "Note"), which Note,
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<PAGE>
substantially in the form of Exhibit B attached hereto, shall be placed in
---------
escrow on the Closing Date (the "Escrowed Funds") with an escrow agent
mutually acceptable to the parties hereto in respect of security for certain
indemnification obligations of Sellers hereunder and disbursed pursuant to
and in accordance with the terms and conditions of an escrow agreement, dated
as of the Closing Date, substantially in the form of Exhibit C attached
---------
hereto (the "Escrow Agreement"). The Parties acknowledge and agree that they
are entering into the Escrow Agreement to secure Buyer's right to the
indemnifications provided for in Section 11.2(a) hereof.
(b) All payments to be made to Sellers pursuant to this Section
2.2 by wire transfer of immediately available funds shall be made to such
account or accounts as the Sellers may reasonably direct by written notice
delivered to Buyer at least two (2) business days prior to the Closing Date
or in such other manner as the Parties may mutually agree.
2.3 Purchase Price Adjustments.
--------------------------
(a) Indebtedness and Long-Term Liability Adjustment.
-----------------------------------------------
(i) Definitions. For purposes of this Section 2.3(a),
-----------
"Excluded Obligations" shall mean, with respect to the Partnership and the
Partners all obligations, liabilities, and actions arising out of or in
connection with Benefit Arrangements and Indebtedness and other liabilities
relating thereto of any kind incurred or entered into, as applicable, on or
prior to the Closing Date (whether past, present or future) other than
current liabilities incurred in the ordinary course of business consistent
with past practices and having a term, maturity or payment date of not more
than ninety (90) days or not otherwise terminable within ninety (90) days.
(ii) Indebtedness and Long-Term Liability Adjustment. On
-----------------------------------------------
or after the Closing Date, the Purchase Price shall be decreased, on a
dollar-for-dollar basis, by an amount equal to the aggregate of all Excluded
Obligations in accordance with the provisions of Section 11 hereof; provided,
however, that Seller agrees to indemnify Buyer in accordance with the
provisions of Section 11 hereof for any Excluded Obligations not covered by
the foregoing adjustment.
(b) Net Current Asset Adjustment.
----------------------------
(i) Definitions. For the purposes of this Section 2.3(b),
-----------
the following terms shall have the following meanings:
(A) "1996 Balance Sheet" shall mean the audited
combined balance sheet of the Partners as of December 31, 1996,
together with the notes thereon and the related unqualified report of
Ernst & Young LLP, the
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<PAGE>
certified public accountants of the Partners and the Partnership.
(B) "1995 Assets" shall mean the net amount of all
current assets on the Balance Sheet as determined in accordance with
generally accepted accounting principles consistently applied;
provided, however, that, for purposes of this Agreement, "1995 Assets"
shall not include: (i) that certain SAS receivable in an amount of
$214,212; (ii) the current portion of notes receivable arising from the
sale of laundromat stores subject to Laundromat Leases; and (iii) the
current portion of notes receivable arising out of real estate
transactions and only to the extent not in connection with the Business.
(C) "1996 Assets" shall mean the net amount of all
current assets on the 1996 Balance Sheet as determined in accordance
with generally accepted accounting principles consistently applied;
provided, however, that, for purposes of this Agreement, "1996 Assets"
shall not include: (i) the current portion of notes receivable arising
from the sale of laundromat stores subject to Laundromat Leases; and
(ii) the current portion of notes receivable arising out of real estate
transactions and only to the extent not in connection with the Business.
(D) "1995 Liabilities" shall mean the net amount of
all current liabilities of the Partners on the Balance Sheet as
determined in accordance with generally accepted accounting principles;
provided, however, that, for purposes of this Agreement, "1995
Liabilities" shall not include the current portion of notes payable
arising out of real estate transactions and only to the extent not in
connection with the Business.
(E) "1996 Liabilities" shall mean the net amount of
all current liabilities of the Partners on the 1996 Balance Sheet as
determined in accordance with generally accepted accounting principles;
provided, however, that, for purposes of this Agreement, "1996
Liabilities" shall not include the current portion of notes payable
arising out of real estate transactions and only to the extent not in
connection with the Business.
(F) "1995 Net Current Asset Value" shall mean the
1995 Assets less the 1995 Liabilities. The 1995 Net Current Asset
Value can be a positive or a negative number.
(G) "1996 Net Current Asset Value" shall mean the
1996 Assets less the 1996 Liabilities. The 1996 Net Current Asset
Value can be a positive or a negative number.
- 12 -
<PAGE>
(H) "Deficiency Amount" shall mean the amount, if
any, by which the 1996 Net Current Asset Value is less than (more
negative than) the 1995 Net Current Asset Value; provided, however,
that the Deficiency Amount shall not include any payments (other than
payments out of cash or cash equivalents as reflected on the 1996
Balance Sheet) made by the Partnership on or after December 31, 1996
and on or prior to the Closing Date (i) pursuant to Section 6.11 and
6.12 hereof or (ii) relating to real property taxes payable by the
Partnership in respect of Leases that are Related Party Contracts.
(ii) Delivery of 1996 Balance Sheet. Buyer shall deliver
------------------------------
to Sellers the 1996 Balance Sheet no later than ninety (90) days after
December 31, 1996.
(iii) Net Current Asset Adjustment. Subject to the
----------------------------
provisions of subsection 2.3(d) hereof, no later than ten (10) business days
after delivery of the 1996 Balance Sheet to the Sellers by Buyer, Sellers
shall pay to Buyer by wire transfer of immediately available funds an amount
in cash equal to the Deficiency Amount, if any.
(d) Arbitration. If Buyer and Sellers shall be unable to agree
-----------
on the calculation of the amount of any adjustment to the Purchase Price
required by this Section 2.3 or shall be unable to resolve any other dispute
arising under this Section 2.3 (any such dispute, a "Dispute") within fifteen
(15) days of the date on which any such adjustment should be made pursuant to
this Section 2.3, then such Dispute shall, at the demand of any party hereto,
be determined by arbitration. Buyer and Sellers shall appoint an arbitrator
("Arbitrator") who is licensed by the American Arbitration Association
("AAA") to arbitrate such Dispute. In the event Buyer and Sellers cannot
agree on the selection of the Arbitrator, each party shall select one
arbitrator who shall together select the Arbitrator who shall arbitrate the
matter. Buyer and Sellers shall, within twenty (20) days thereafter present
their positions with respect to the Dispute to the Arbitrator together with
such other materials as the Arbitrator deems appropriate. The Arbitrator
shall, after the submission of such evidentiary materials, submit a written
decision on such Dispute to Sellers and Buyer. Any determination by the
Arbitrator with respect to any such Dispute shall be final and binding on
Buyer and Sellers. The arbitration shall be conducted in New York, New York
in accordance with the commercial arbitration rules of the AAA as in effect
for commercial arbitrations conducted in New York, New York by the AAA.
Sellers and Buyer agree that the cost of the Arbitrator shall be borne 50% by
Sellers and 50% by Buyer.
2.4 Escrow Agreement. At the Closing, Sellers and Buyer will enter
----------------
into the Escrow Agreement relating to certain indemnification obligations of
Sellers arising under Article 11 of this Agreement.
- 13 -
<PAGE>
ARTICLE 3
CLOSING
3.1 Closing. The closing of the transactions contemplated herein
-------
(the "Closing") shall be held at 10 a.m. Dallas time on the Closing Date at
the offices of Strasburger & Price, L.L.P., Suite 4300, 901 Main Street,
Dallas, Texas, unless the Parties otherwise agree.
3.2 Deliveries. To effect the transfer referred to in Section 2.1
----------
and the delivery of the consideration described in Section 2.2 hereof, the
applicable Parties shall, on the Closing Date, deliver the following:
(a) Sellers shall deliver to Buyer certificate(s) evidencing
the (i) Stock (duly endorsed in blank for transfer or accompanied by stock
powers duly executed in blank) and (ii) the Partnership Interests, in each
case free and clear of any Encumbrances.
(b) Sellers and Buyer shall each deliver all documents required
to be delivered pursuant to this Agreement.
(c) Buyer shall deliver the Note and the immediately available
funds, in each case as provided in Section 2.2.
(d) Buyer shall cause CLC to deliver to Sellers a stock pledge
agreement pursuant to which Sellers are granted a second lien security
interest in the outstanding capital stock of Buyer to secure payment of the
Note.
(e) All instruments and documents to be executed and delivered
to Buyer pursuant hereto shall be in form and substance, and shall be
executed in a manner, reasonably satisfactory to Buyer. All instruments and
documents to be executed and delivered to Sellers pursuant hereto shall be in
form and substance, and shall be executed in a manner, reasonably
satisfactory to the Sellers.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF SELLERS, PARTNERS AND THE PARTNERSHIP
Except as otherwise set forth in the Disclosure Schedule, each of
the Kwik Wash Entities hereby represents and warrants to Buyer as follows:
4.1 Organization of Sellers. Each Seller that is not a natural
-----------------------
person is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its formation and
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<PAGE>
is qualified to do business in each jurisdiction in which its ownership of
property or conduct of business requires it to be so qualified. Each Seller has
the power and authority necessary to own and operate its properties and assets,
carry on its business and enter into, deliver and carry out its obligations
under the Transaction Documents. Sellers own of record and beneficially all of
the Stock (which Stock constitutes all of the issued and outstanding capital
stock of each of the Partners), free and clear of all Encumbrances.
4.2 Organization of Partners. Each Partner is duly organized,
------------------------
validly existing and in good standing under the laws of the State of Nevada,
has full corporate power and authority to conduct its business as it is
presently being conducted and as proposed to be conducted and to own and
lease its assets and properties, including, without limitation, the
Partnership Interests and to enter into, deliver and carry out its
obligations under the Transaction Documents and the transactions contemplated
thereby. Each Partner is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary or required under any applicable Legal Requirement
as a result of the conduct of its business or the ownership of its assets or
properties. Each jurisdiction in which the Partners are qualified to do
business as a foreign corporation is listed on the Disclosure Schedule. The
corporate minute books, registers and other corporate books and records of
the Partners are correct, current, and complete in all material respects,
nothing has been removed from such books and records, and the signatures
appearing on all documents contained therein are the true signatures of the
Persons purporting to have signed the same. All actions reflected in such
books and records were duly and validly taken in compliance with all
applicable Legal Requirements. Except for the Partnership Interests, no
Partner owns any Equity Interests of, and is not in any manner affiliated
(whether through an Investment or other participation of any kind) with the
Equity Interests of, any Person.
4.3 Capitalization of the Partners. GP has authorized 100,000 shares
------------------------------
of GP Stock, 54,675 shares of which are issued and outstanding. LP has
authorized 500,000 shares of LP Stock, 54,675 shares of which are issued and
outstanding. The number of shares of Stock set forth opposite each Seller's
name on the Disclosure Schedule are owned of record and beneficially by each
Seller, free and clear of all Encumbrances. Upon transfer of the shares of
Stock to Buyer hereunder on the Closing Date in accordance with Section 2.1
of this Agreement, Buyer will receive good and marketable title to such
shares of Stock, free and clear of all Encumbrances. The Stock constitutes
all of the Equity Interests of the Partners, and all of the Partners' shares
of Stock have been duly authorized and validly issued and are fully paid and
non-assessable and are not subject to any Encumbrances. There are no
subscriptions, options, warrants, calls, commitments or other rights of any
kind outstanding for the purchase of, nor
- 15 -
<PAGE>
any securities convertible or exchangeable for, Equity Interests of the
Partners.
4.4 Organization of the Partnership. The Partnership is duly formed
-------------------------------
and validly existing under the partnership laws of the State of Texas, has
full partnership power and authority to conduct its business as presently
being conducted and as proposed to be conducted and to own and lease its
properties and Assets. The Partnership is duly qualified to do business as a
foreign limited partnership and is in good standing in each jurisdiction in
which such qualification is necessary under any applicable Legal Requirement
as a result of the conduct of the Business or the ownership of its Assets and
properties. Each jurisdiction in which the Partnership is qualified to do
business as a foreign limited partnership is listed on the Disclosure
Schedule. The partnership minute books, registers and other partnership
books and records of the Partnership are correct, current, and complete in
all material respects, nothing has been removed from such books and records,
and the signatures appearing on all documents contained therein are the true
signatures of the persons purporting to have signed the same. All actions
reflected in such books and records were duly and validly taken in compliance
with all applicable Legal Requirements.
4.5 Capitalization of the Partnership. GP is the sole general
---------------------------------
partner of the Partnership and owns of record and beneficially 1% of the
outstanding Partnership Interests of the Partnership, and LP is the sole
limited partner of the Partnership and owns of record and beneficially 99% of
the outstanding Partnership Interests of the Partnership. The Partnership
Interests constitute all of the issued and outstanding Equity Interests in
the Partnership, and the Partners have good and marketable title to the
Partnership Interests, free and clear of all Encumbrances. The Disclosure
Schedule contains a true and complete copy of the partnership agreement of
the Partnership and all amendments, modifications or supplements thereto.
All of the outstanding Partnership Interests have been duly authorized and
validly issued and are fully paid and non-assessable and are not subject to
any Encumbrances. There are no subscriptions, options, warrants, calls,
commitments or other rights of any kind outstanding for the purchase of, nor
any securities convertible or exchangeable for, any Partnership Interests or
other Equity Interests of the Partnership. The Partnership owns no Equity
Interests of, and is not in any manner affiliated (whether through an
Investment or participation of any kind) with the Equity Interests of, any
Person.
4.6 Authorization; Binding Effect. Each of the Kwik Wash Entities
-----------------------------
that is not a natural person has all necessary corporate or partnership power
and authority, as applicable, to enter into the Transaction
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<PAGE>
Documents and has taken all corporate or partnership action, as applicable,
necessary to consummate the transactions contemplated thereby and to perform all
of its respective obligations thereunder. Each of the Transaction Documents to
which each Kwik Wash Entity is a party has been duly executed and delivered by
each such Kwik Wash Entity. Each Transaction Document is a legal, valid and
binding obligation of each Kwik Wash Entity enforceable against each such Kwik
Wash Entity in accordance with its respective terms.
4.7 No Conflict or Violation. Neither the execution and delivery of
------------------------
the Transaction Documents nor the consummation of the transactions
contemplated thereby will result in (a) a violation of or a conflict with any
of the organizational documents, if applicable, of any of the Sellers, the
certificates of incorporation or bylaws of the Partners or any provision of
the partnership agreement or other formation documents of any of the Kwik
Wash Entities, (b) a breach or violation of, or a material default under, any
term or provision of any Contract, agreement, Indebtedness, Encumbrance,
commitment, franchise, Permit, authorization or concession to which any Kwik
Wash Entity is a party or by which any of the Assets are bound, (c) a
violation by any Kwik Wash Entity of any Legal Requirement, or (d) an
imposition of any Encumbrance on the Stock, the Partnership Interests, the
Business or any of the Assets.
4.8 Absence of Certain Changes or Events. Since August 31, 1996,
------------------------------------
except as otherwise expressly permitted pursuant to this Agreement, there has
not been any:
(a) change in any of the Partners' or the Partnership's
condition (financial or otherwise), Assets, liabilities, working capital,
reserves, earnings, Business or prospects, operating results or employee,
Customer or supplier relations, in each case, except in the ordinary course
of business and consistent with past practices;
(b) (i) except for normal periodic increases in the ordinary course
of business and consistent with past practices, increase in the compensation
payable or to become payable by the Partnership or any Partner to any of
their respective officers, directors, employees or other Representatives
(collectively, "Personnel") (ii) bonus, incentive compensation, service award
or other like benefit granted, made or accrued, contingently or otherwise,
for or to the credit of any of the Personnel, (iii) employee welfare,
pension, retirement, profit-sharing or similar payment or arrangement made or
agreed to by any Kwik Wash Entity for any Personnel except pursuant to the
existing plans and arrangements described in the Disclosure Schedule or (iv)
new employment agreement to which the Partnership or any Partner is a party;
(c) addition to, modification of or prepayments of any kind
with respect to, the employee benefit plans, arrangements or practices
described in the Disclosure Schedule affecting Personnel other than (i)
contributions made for that portion of the Partnership's fiscal year 1996
through the Closing Date, in accordance with the normal practices of the
Partnership or (ii)
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<PAGE>
the extension of coverage to other Personnel who became eligible after the
Balance Sheet Date;
(d) sale, assignment or transfer of any of the Assets, other
than in the ordinary course of business and consistent with past practices;
(e) cancellation of any Indebtedness or waiver of any rights of
substantial value to any Partner or the Partnership, whether or not in the
ordinary course of business;
(f) amendment, cancellation or termination of any Contract,
Permit or other instrument relating to the Assets, Business, prospects,
liabilities, earnings or condition (financial or otherwise) of any Partner or
the Partnership, other than in the ordinary course of business and consistent
with past practices;
(g) (i) capital expenditure (other than in respect of Machines)
or any liability therefor by any Partner or the Partnership in excess of
$50,000, (ii) lease bonus or similar up front lease payments or liability
therefor by the Partnership or any Partner in excess of $50,000, or
(iii) other liability by any Partner or the Partnership not in the ordinary
course of business or involving payments in excess of $25,000 in the
aggregate;
(h) failure to repay any obligation of any Partner or the
Partnership;
(i) failure to operate the Business in the ordinary course and
consistent with past practices and to preserve the Business intact, to keep
available to Buyer the services of key Personnel, or to preserve for Buyer
the goodwill of the Partnership's suppliers, Customers and others having
business relations with it;
(j) change in accounting methods or practices by the
Partnership or any Partner affecting its Assets, earnings, reserves, working
capital, prospects, liabilities or Business;
(k) revaluation by the Partnership or any Partner of any of its
Assets or properties, including without limitation, writing off of notes or
accounts receivable, other than in accordance with generally accepted
accounting principles and in the ordinary course of business and consistent
with past practices;
(l) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting any of the Facilities, properties,
Assets, Business, condition (financial or otherwise) or prospects of any
Partner or the Partnership;
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<PAGE>
(m) Encumbrance on any of the Stock, the Partnership Interests,
the Business, Assets, or other properties of the Partnership or any Partner;
(n) declaration, setting aside or payment by any of the
Partners or the Partnership of dividends or distributions in respect of any
Stock, Partnership Interest or other Equity Interests or any redemption,
purchase or other acquisition of any such Stock, Partnership Interests or
other Equity Interests;
(o) issuance by any Partner or the Partnership of, or
commitment by any Partner or the Partnership to issue, any Stock, Partnership
Interests or other Equity Interests;
(p) Indebtedness incurred by any Partner or the Partnership,
except to the extent incurred with Buyer's prior written consent.
(q) liabilities incurred not in the ordinary course of business
and consistent with past practices and involving $50,000 or more, or any
increase or change in any assumptions underlying or methods of calculating
any bad debt, contingency or other reserves, other than certain ordinary
course adjustments relating to insurance reserves for paying general
liability claims and reserves for paying employee injury claims, which
adjustments shall not exceed $25,000 in the aggregate;
(r) payment, discharge or satisfaction of any liabilities other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practices, of liabilities reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business and consistent with past practices since the Balance Sheet Date;
(s) activity which has resulted or may, with the passage of time or
the giving of notice or otherwise, result in the acceleration or delay of the
collection of its notes or accounts receivable or any delay in the payment of
its accounts payable, in each case as compared with its custom and practice
in the conduct of the Business immediately prior to the Balance Sheet Date;
(t) loan or advance of any of the Assets or any of the
Partnership's or any Partner's funds or other property to, or guarantee for
the benefit of, or any Investment of any of its Assets or funds or other
property in, any other Person;
(u) receipt of any notice or other indication by any Partner or
the Partnership (i) from any of the Partnership's suppliers to the effect that
such supplier may stop, or decrease the rate of, supplying Machines, Parts or
other products or services to the Partnership; (ii) from (A) any of the twenty-
seven (27) largest Customers or (B) any Customer or Customers, whether
individually or in the aggregate, representing five percent (5%)
- 19 -
<PAGE>
or more of the On-Location Machines, to the effect that such Customer or
Customers may stop using or decrease the rate of buying Machines or Parts or
services offered by the Partnership through the conduct of the Business; or
(iii) from (A) any of the Partnership's suppliers, (B) any of the twenty-seven
(27) largest Customers or (C) any Customer or Customers, whether individually or
in the aggregate, representing five percent (5%) or more of the On-Location
Machines, to the effect that any of such suppliers or Customers have or are
reasonably likely to experience an event or condition which may have an Adverse
Effect on such suppliers or Customers or their respective Contracts or business
relations with the Business or the Partnership;
(v) other event or condition of any character which, in any one
case or in the aggregate, has resulted in an Adverse Effect or any event or
condition known to any Kwik Wash Entity which could, in any one case or in
the aggregate, result in an Adverse Effect; or
(w) agreement by any of the Kwik Wash Entities or by any of
their respective Representatives to do any of the foregoing, as applicable.
4.9 Title to Assets, etc.
--------------------
(a) The Partnership has good and marketable fee simple title
to, or a valid and subsisting leasehold interest in, all the assets and
interests reflected on the Balance Sheet or acquired in the ordinary course
of business since the Balance Sheet Date including, without limitation, all
Machines, Parts, Facilities, Fixtures and Equipment, Motor Vehicles,
Contracts and Permits (collectively, the "Assets"). The Disclosure Schedule
provides a complete and accurate listing, in all material respects, of all
the Assets.
(b) The assets and property of GP consist solely of the GP
Interests, and the assets and property of LP consist solely of the LP
Interests.
(c) None of the Assets are subject to any Encumbrance.
(d) The Assets constitute all of the assets and rights which
are necessary for the conduct of the Business as currently conducted and as
proposed to be conducted. The Partnership has performed all material
obligations required to be performed by it with respect to all Assets leased
by it through the date hereof including, without limitation, all of its
material obligations under the Leases.
(e) The Partnership enjoys peaceful and undisturbed possession
of all Facilities owned or leased by it, and such Facilities are not located
within any flood plain and are not subject to any Encumbrances,
encroachments, building or use restrictions, exceptions, or limitations which
in any material
- 20 -
<PAGE>
respect interfere with or impair the present and continued use thereof in the
usual and normal conduct of the Business. The Facilities are supplied with
utilities and other services necessary for the Business with respect thereto
(including without limitation any necessary gas and electricity, the
unrestricted use and right to a water supply sufficient for the Business, and
sanitary and storm sewer services).
(f) There are no pending or, to the best knowledge of any of
the Kwik Wash Entities, threatened condemnation proceedings or administrative
actions involving or relating to any of the Facilities.
(g) The real property improvements (including leasehold
improvements situated in or on the properties leased under the Leases),
Fixtures and Equipment and other tangible assets owned, leased or used by the
Partnership at the Facilities are structurally sound with no known material
defects. None of said improvements, Fixtures and Equipment or other assets
is subject to any Encumbrance, directly or indirectly, arising out of or in
connection with any act or omission of any Kwik Wash Entity or any commitment
or other arrangement for their sale or use by any other Person.
(h) The Assets are valued at or below actual cost less an
adequate and proper depreciation charge. All of the Assets have a fair
market or realizable value at least equal to the value thereof as reflected
on the Balance Sheet. The Partnership has not depreciated any of the Assets
on an accelerated basis or in any other manner inconsistent with applicable
Internal Revenue Service rules, regulations, guidelines or other
pronouncements, if any.
(i) The Disclosure Schedule states the name of each bank or
other financial institution with which any Partner or the Partnership has an
account or safety deposit box, together with the names of all Persons
authorized to draw therefrom and have access thereto.
4.10 Condition of Tangible Assets. The Facilities and Fixtures and
----------------------------
Equipment are in good operating condition and repair, are sufficient for the
operation of the Business as presently conducted and are in substantial
compliance with all applicable Legal Requirements. The list of Facilities
and Fixtures and Equipment in the Disclosure Schedule is complete and
accurate in all material respects.
4.11 Contracts and Commitments. Except as explicitly set forth on the
-------------------------
Disclosure Schedule, neither Partner nor the Partnership is a party to any
written or oral:
(a) commitment, contract, Indebtedness or purchase order involving any
obligation or liability on the part of any
- 21 -
<PAGE>
Partner or the Partnership of more than $10,000 and not cancelable (without
liability) within 30 days;
(b) lease of real property (the Disclosure Schedule indicates,
with respect to each lease of real property listed on the Disclosure
Schedule, the term, annual rent, renewal options and number of square feet
leased and the identification of any Related Parties who are parties to any
such Lease) or any sublease, license, concession or other agreement granting
to any Person the right of use or occupancy of any real property to which any
such lease relates;
(c) lease of personal property involving any annual expense in
excess of $10,000, and not cancelable (without liability) within 30 days (the
Disclosure Schedule indicates, with respect to each lease of personal
property listed on the Disclosure Schedule, a general description of the
leased items, term, annual rent and renewal options);
(d) governmental or regulatory Permit required to conduct the
Business as presently conducted and as proposed to be conducted;
(e) contract or agreement (including confidentiality or other
similar arrangements) with any Person containing covenants limiting the
freedom or ability of the Partnership or any Partner to engage in any line of
business or compete with any Person or any contracts, arrangements or
agreements with competitors, Customers or suppliers;
(f) employment or consulting contract, including, without
limitation, contracts to employ executive officers and other contracts or
arrangements with Representatives of any Partner or the Partnership, and
contracts or arrangements with independent contractors on a full-time,
part-time, consulting or other basis;
(g) employee collective bargaining agreement, employment
agreement, consulting, advisory or service agreement, deferred compensation
agreement, confidentiality agreement or covenant not to compete;
(h) pension, profit sharing, stock option, stock appreciation,
employee stock purchase, bonus, benefit or other plan or arrangement
providing for deferred or other compensation to employees or any other
employee benefit, welfare or stock plan or arrangement including, without
limitation, all arrangements, policies, plans and programs relating to
retirement, disability, insurance, (including any self-insured arrangements),
severance pay, supplemental unemployment benefit, vacation, leave of absence,
equity participation, stock purchase, stock option, stock appreciation right
or any other incentive arrangement, or any contract with any labor union;
- 22 -
<PAGE>
(i) contract pursuant to which any Partner or the Partnership has
advanced or loaned funds or made any Investments of funds or other property
or Assets, or agreed to advance or loan funds to any other Person or to do
any of the foregoing, other than prepayments in the ordinary course of
business consistent with past practices and listed on the Disclosure Schedule;
(j) contract or indenture that, with the giving of notice or the
passage of time, could result in an Encumbrance on any Asset (other than any
Encumbrance which will be extinguished prior to the Closing Date);
(k) assignment, license, indemnification or other contract with
respect to any intangible property (including any Proprietary Right);
(l) independent or service representative or distributorship
agreement; and
(m) contract or commitment not otherwise described above or
listed in the Disclosure Schedule (including without limitation purchase
orders, franchise agreements and undertakings or commitments to any
governmental or regulatory authority) relating to the Business or otherwise
affecting the Business and not in the ordinary course of business and
consistent with past practices.
The Partnership has performed all obligations required to be
performed by it under each Contract, and it is not (and, to the best
knowledge of the Kwik Wash Entities, no other Person is) in breach or
violation of, or default under any of the Contracts or other instruments,
obligations, evidences of Indebtedness or commitments described in (a)-(m)
above, which breach, violation or default could result in an Adverse Effect.
No event has occurred which, with the giving of notice or the passage of time
or both, would result in a default, breach or event of noncompliance under
any obligation of the Partnership, the Partners or the Sellers pursuant to
any Contract, which breach, violation or default could result in an Adverse
Effect. Except as explicitly set forth in the Disclosure Schedule, the
consummation of the transactions contemplated by the Transaction Documents
will not (a) require the consent, approval or authorization of any Consenting
Party or (b) have a material adverse effect on any Contract or result in the
termination, default under, breach or violation of, or imposition of any
Encumbrance on, any Contract. Neither the Partnership nor any Partner has a
present expectation or intention of not fully performing any obligation
pursuant to any Contract, and no Kwik Wash Entity has knowledge or notice of
any breach or anticipated breach by any other Person to any Contract. Each
Contract described on the Disclosure Schedule is valid,
- 23 -
<PAGE>
binding, enforceable and in full force and effect in all material respects in
accordance with its terms and will continue to be valid, binding, enforceable
and in full force and effect in all material respects on identical terms after
the Closing.
4.12 Location Contracts and Laundromat Leases. The Disclosure
----------------------------------------
Schedule provides a complete and accurate listing of all the Location
Contracts and the Laundromat Leases as of the Closing Date and a brief
description of the material terms of each such Location Contract and
Laundromat Lease including, without limitation: (a) the termination date and
remaining months of the term (which dates do not take into account any option
to renew or likelihood of renewal); (b) with respect to each Location
Contract (excluding Laundromat Leases), the effective commission rate payable
thereunder and the amount of any "front money" paid or owing when such
Location Contract was executed; (c) the number of On-Location Machines at
each Location; (d) whether such Location Contract or Laundromat Lease grants
a right of first refusal to the Partnership; (e) whether such Location
Contract or Laundromat Lease contains an automatic renewal provision in favor
of the Partnership upon termination or expiration of such Location Contract
or Laundromat Lease; (f) whether such Laundromat Lease is assignable; (g)
whether such Laundromat Lease contains rent escalation provisions; (h) with
respect to each Laundromat Lease, the Person responsible for structural
and/or similar repairs to the Location subject to such Laundromat Lease; and
(i) with respect to each Laundromat Lease, whether any certificate of
occupancy or other Permit is required in connection with the use, transfer or
sale of such Laundromat Lease. Except as explicitly set forth on the
Disclosure Schedule, each Location Contract grants the Partnership the
exclusive right to install and operate all On-Location Machines at each
Location set forth in the Location Contract. To the best knowledge of the
Kwik Wash Entities, (a) not more than five percent (5%) of all Leases are
oral Leases, and (b) none of the Location Contracts or the Laundromat Leases
contains a "change of control" or similar provision or otherwise requires the
consent of a Consenting Party in connection with the transactions
contemplated by any of the Transaction Documents. As of the date of this
Agreement, the Kwik Wash Entities have not received notices, written or oral,
from any Customer or Customers, whether individually or in the aggregate,
representing either five-percent (5%) or more of the Location Contracts or
five-percent (5%) or more of the Laundromat Leases (a) requesting or
threatening the removal of any On-Location Machine from a Location or any
other anticipatory breach of any Location Contract or Laundromat Lease, (b)
of any foreclosure against any Location set forth in any of the Location
Contracts or Laundromat Leases or (c) questioning the validity or
enforceability of any Location Contract, any Laundromat Lease or any
provision thereof. The Partnership has obtained, or shall obtain on or prior
to the Closing Date, all consents or waivers from Consenting Parties.
4.13 Consents and Approvals. Except as explicitly set forth on the
----------------------
Disclosure Schedule and other than any filing required to be made under the
HSR Act, no Permit is required to
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<PAGE>
be obtained by any of the Kwik Wash Entities in connection with the execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated thereby.
4.14 Financial Statements. Sellers have heretofore delivered to Buyer
--------------------
the Balance Sheet and Financial Statements. Except as otherwise set forth
therein, the Balance Sheet and Financial Statements are complete, are in
accordance with the books and records of each Partner and the Partnership,
accurately reflect the assets, liabilities and financial condition and
results of operations indicated thereby in accordance with generally accepted
accounting principles consistently applied, and contain and reflect all
necessary adjustments for a fair representation of the Balance Sheet and
Financial Statements, taken as a whole, as of the dates and for the periods
covered thereby.
4.15 Litigation. There is no material action, order, writ,
----------
injunction, judgment or decree outstanding or claim, suit, litigation,
proceeding, labor dispute, arbitral action, investigation or inquiry
(collectively, "Actions") pending or, to the best knowledge of the Kwik Wash
Entities, threatened or anticipated against, relating to or affecting (i) any
Partner or the Partnership, (ii) any benefit plan for Personnel or any
fiduciary or administrator thereof or (iii) the Sale or any of the other
transactions contemplated by the Transaction Documents. None of the Kwik
Wash Entities are in default with respect to any judgment, order, writ,
injunction or decree of any court or governmental agency, and there are no
unsatisfied judgments against any Kwik Wash Entity. There is not a
reasonable likelihood of an adverse determination of any pending Actions
which could, individually or in the aggregate, be reasonably expected to
result in an Adverse Effect.
4.16 Labor Matters. Except as explicitly set forth on the Disclosure
-------------
Schedule, neither the Partnership nor any Partner is a party to any labor
agreement with any labor organization, group or association on behalf of or
for the benefit of Personnel. The Partnership has not experienced any
attempt by organized labor or its representatives to make the Partnership
conform to demands of organized labor relating to its employees or to enter
into a binding agreement with organized labor that would cover the
Personnel. The Partners and the Partnership are in substantial compliance
with all applicable Legal Requirements respecting employment practices, terms
and conditions of employment and wages and hours and is not engaged in any
unfair labor practice. There is no unfair labor practice charge or complaint
against the Partnership or any Partner pending before the National Labor
Relations Board or any other governmental agency arising out of the
Partnership's or any Partner's activities, and none of the Kwik Wash Entities
have any knowledge of any facts or information which would give rise
thereto. There is no labor strike or labor disturbance pending or threatened
- 25 -
<PAGE>
against the Business, the Partnership or any Partner, no grievance is
currently being asserted against any of them, and neither the Partnership nor
any Partner has experienced a work stoppage or other labor difficulty. Since
the enactment of the Worker Adjustment and Retraining Notification Act (the
"WARN Act"), neither the Business, the Partnership nor the Partners have
engaged in a transaction or series of transactions which, in the aggregate,
could cause the notice provisions of the WARN Act to be applicable to the
transactions contemplated by the Transaction Documents. No Personnel have
suffered an "employment loss" (as defined in the WARN Act) within six months
prior to the date hereof. The Partnership has not been affected by any
transaction or engaged in layoffs or employment terminations with respect to
the Business sufficient in number to trigger application of any similar state
or local law.
4.17 Liabilities. Neither the Partnership nor any Partner has any
-----------
liabilities or obligations (absolute, accrued, contingent or otherwise),
except (i) liabilities which are reflected and adequately reserved against on
the Balance Sheet, and (ii) liabilities incurred in the ordinary course of
business and consistent with past practices since the Balance Sheet Date.
4.18 Compliance with Law. Each Partner, the Partnership, the
-------------------
Facilities and the conduct of the Business are in substantial compliance with
all applicable Legal Requirements. None of the Kwik Wash Entities have
received any notice to the effect that, or otherwise been advised that, any
Partner or the Partnership is not in compliance with any of such applicable
Legal Requirements, and no Kwik Wash Entity has any reason to anticipate that
any presently existing circumstances are likely to result in violations of
any applicable Legal Requirements. The items described on the Disclosure
Schedule constitute all of the filings, notices, Permits, and the like of, to
or with any governmental or regulatory entity which are required for the
consummation of the Sale or any other transaction contemplated by the
Transaction Documents.
4.19 No Brokers. None of the Kwik Wash Entities or any Representative
----------
or Affiliate of any of them have entered into or will enter into any
Contract, agreement, arrangement or understanding with any Person which could
result in the obligation of Buyer to pay any finder's fee, brokerage
commission or similar payment in connection with any of the transactions
contemplated by the Transaction Documents.
4.20 No Other Agreements to Sell the Stock, Partnership Interests,
-------------------------------------------------------------
Assets or the Partnership. None of the Kwik Wash Entities have any
- -------------------------
obligation, absolute or contingent, to any other Person to sell the Business,
the Assets, any of the shares of Stock, or any of the Partnership Interests
or to effect any merger, consolidation or other reorganization of any Partner
or the Partnership or to enter into any agreement with respect thereto.
- 26 -
<PAGE>
4.21 Proprietary Rights. The Disclosure Schedule contains a complete
------------------
and accurate list of all of the Proprietary Rights. The Proprietary Rights
listed in the Disclosure Schedule are all those used in the Business as
presently conducted and as proposed to be conducted. No Person has a right
to receive a royalty or similar payment in respect of any Proprietary Right
pursuant to any contractual or other arrangement entered into by any Partner
or the Partnership, and no Person otherwise has a right to receive a royalty
or similar payment in respect of any such Proprietary Right. The
Partnership's use of the Proprietary Rights is not infringing upon or
otherwise violating the rights of any Person in or to such Proprietary
Rights, and no proceedings have been instituted or claims made or threatened
against or notices received by any Kwik Wash Entity alleging that the
Partnership's use of its Proprietary Rights infringes upon or otherwise
violates any right of any Person in or to such Proprietary Rights. The
Proprietary Rights have not been infringed or misappropriated by any other
Person. Except as explicitly set forth on the Disclosure Schedule, the
Partnership owns and possesses all right, title and interest in and to all
Proprietary Rights, in each case, free and clear of all Encumbrances. The
Partnership has taken all necessary actions to maintain and protect the
Proprietary Rights which it owns or uses. The consummation of the
transactions contemplated by the Transaction Documents will not have an
adverse effect on any Proprietary Right.
4.22 Employee Benefit Plans.
----------------------
(a) General Definitions. For the purposes of this Section 4.22
-------------------
and Article 11, the following definitions shall apply:
(i) "Employee Plan" shall mean each "employee benefit
-------------
plan", as defined in Section 3(3) of ERISA, that is maintained, administered
or contributed to by the Partnership or any of its Affiliates or to which the
Partnership or any of its Affiliates is or has been obligated to contribute.
(ii) "Affiliate" shall mean, in addition to any Person
---------
contained within the definition of "Affiliate" in Section 1.1 of this
Agreement, any other Person which, together with the Partnership, would be
treated as a single employer under Section 414 of the Code.
(iii) "Multi-employer Plans" shall mean any Employee Plan that
--------------------
meets the definition of a "multi-employer plan" in Section 3(37) of ERISA.
(iv) "Title IV Plan" shall mean any Employee Plan that is
-------------
subject to Title IV of ERISA.
(v) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation.
- 27 -
<PAGE>
(vi) "Benefit Arrangement" shall mean any compensation
-------------------
arrangements, bonus or benefit plans, programs or other arrangements
maintained by the Partnership, including without limitation, all
arrangements, policies, plans and programs relating to retirement,
disability, insurance, (including any self-insured arrangements), severance
pay, supplemental unemployment benefits, vacation, leave of absence, equity
participation, stock purchase, stock option, stock appreciation right or any
other incentive arrangements.
(b) Disclosure. The Disclosure Schedule sets forth all
----------
Employee Plans and identifies each Employee Plan which is (i) a
Multi-employer Plan, (ii) a Title IV Plan, (iii) maintained in connection
with any trust described in Section 501(c)(9) of the Code or (iv) another
type of Employee Plan.
(c) Delivery of Documents and Information. The Partnership and
-------------------------------------
the Sellers have heretofore delivered to Buyer correct and complete copies of
the following items:
(i) the plan document for each Employee Plan covering
Personnel of the Partnership and related trust agreement (and all amendments
thereto), all written interpretations and communications with respect to each
such Employee Plan, and if applicable, written descriptions of any oral
communications or oral representations concerning such Employee Plan;
(ii) the most recent annual report (Form 5500 including,
if applicable, Schedule B thereto) prepared in connection with each Employee
Plan covering Personnel of the Partnership;
(iii) the last actuarial valuation report prepared in
connection with any Title IV Plan covering Personnel of the Partnership; and
(iv) the most recent determination letter from the
Internal Revenue Service relating to each Employee Plan covering Personnel of
the Partnership which is intended to be qualified under Section 401(a) of the
Code.
(d) Except as specifically set forth in the Disclosure Schedule, with
respect to each Employee Plan:
(i) no "prohibited transaction", as defined in Section
----------------------
406 of ERISA or Section 4975 of the Code, has occurred, including, but not
limited to, any loan to an employee stock ownership plan which does not or at
any time has not complied with Section 408(b)(3) of ERISA or Section
4975(d)(3) of the Code, and no Tax or penalty has been imposed or can
reasonably be expected to be imposed under Section 502(i) of ERISA or
Sections 4975(a) or (b) of the Code;
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<PAGE>
(ii) no "accumulated funding deficiency," as defined in Section 412 of
------------------------------
the Code, has been incurred with respect to any Employee Plan which is subject
to Section 412 of the Code, whether or not waived;
(iii) no "reportable event", within the meaning of Section 4043
----------------
of ERISA, for which notice has not been waived under applicable regulations,
has occurred or is continuing;
(iv) no event described in Sections 4062 or 4063 of ERISA
has occurred;
(v) no condition exists or has existed which could
constitute grounds for termination by the PBGC of any Employee Plan which is
a Title IV Plan and no filing has been made by the Partnership or any Seller
or any of their respective Affiliates with the PBGC to terminate any such
Employee Plan;
(vi) each Employee Plan that is intended to be qualified
under Section 401(a) of the Code has received a determination letter from the
Internal Revenue Service stating that such Employee Plan is a qualified plan
and that each trust created under any such Employee Plan is exempt from
taxation under Section 501(a) of the Code and each such Plan and related
trust has been operated in accordance with all applicable laws as of the
effective date thereof, notwithstanding the actual terms of the Employee Plan
documents;
(vii) each Employee Plan has been maintained in compliance in
all material respects with its terms and with the requirements prescribed by
any and all laws, including but not limited to ERISA and the Code, that are
applicable to such plans. The Partnership has timely made all payments and
contributions due from it through the Closing Date with respect to each
Employee Plan, and no contributions are owed by the Partnership with respect
to the 401(k) Plan for the plan year ended August 31, 1996;
(viii) no Tax or penalty under any provision of the Code or ERISA
has been imposed or can reasonably be expected to be imposed as a result of
actions or inactions which occurred prior to the Closing Date;
(ix) no post-retirement medical or life insurance benefit
obligations exist with respect to Personnel or former Personnel of the
Partnership;
(x) there has not been a failure to timely pay any
premium required to be paid to the PBGC on account of any Title IV Plan;
(xi) the Partnership has never contributed nor been obligated to
contribute to any Multi-employer Plan;
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<PAGE>
(xii) there are no pending Actions which either have been
asserted or instituted or can reasonably be expected to be asserted or
instituted against any of the Employee Plans, the assets of any of the trusts
under such Employee Plans, the plan sponsor, the plan administrator, trustee
or any other fiduciary of such Employee Plans with respect to any aspect of
such Employee Plans (except for routine benefit claims or routine expenses);
(xiii) there are no pending or ongoing audits, or inquiries or
investigations by any governmental or regulatory agency;
(xiv) all returns, reports and notices for any Employee Plan
which are required under the Code, ERISA or any other applicable law and the
regulations thereunder have been timely provided to governmental agencies,
employees, participants or beneficiaries; and
(xv) neither the Partnership nor any of its Affiliates is
required to provide security to any Employee Plan under Section 401(a)(29) of
the Code.
(e) Except as explicitly set forth in the Disclosure Schedule
with respect to each Employee Plan, neither the Partnership nor any Partner
nor any of their respective Affiliates has:
(i) engaged in, or is a successor or parent corporation
to any Person that has engaged in, a transaction described in Section 4069 of
ERISA;
(ii) incurred or reasonably expects to incur any liability
under Title IV of ERISA (including, but not limited to liability arising in
connection with any termination of any Employee Plan covered or previously
covered by Title IV of ERISA);
(iii) incurred or reasonably expects to incur any complete or
partial withdrawal liability with respect to any Multi-employer Plan and no
condition exists with respect to any Multi-employer Plan which presents a
risk of complete or partial withdrawal liability under Title IV of ERISA;
(iv) incurred any unsatisfied contribution obligations
under Section 412 of the Code nor has liability for unpaid contributions with
respect to any Employee Plan; or
(v) failed to comply with any of the health care
continuation coverage requirements or related notice requirements under
Section 601, et. seq. of ERISA and Section 4980B of the Code.
-- ---
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<PAGE>
(f) There is no contract, Employee Plan or Benefit Arrangement
covering any current or former Personnel of the Partnership that,
individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to the terms of Section 280G of the
Code.
(g) Except as specifically set forth in the Disclosure
Schedule, no payment, award, bonus, severance payment or other amount under
any contract, Employee Plan or Benefit Arrangement will be triggered as a
result of the events contemplated by the Transaction Documents.
(h) No Employee Plan or Benefit Arrangement has any
restrictions against termination or modification, either by its terms or due
to any written or oral communications by any Representative of the
Partnership.
4.23 Transactions with Certain Persons. Neither any officer,
---------------------------------
director, shareholder, trustee, affiliate, partner or employee of any of the
Kwik Wash Entities, nor any member of such Person's family, nor any Person in
which any such Person owns any beneficial interest (collectively, "Related
Parties"), is presently a party to any transaction with any Partner or the
Partnership, including without limitation, any Contract, agreement or other
arrangement (i) providing for the furnishing of services by, (ii) providing
for the rental of real or personal property from, or (iii) otherwise
requiring payments to (other than for services as officers, directors or
Representatives of the Partners or the Partnership) any such Related Party,
except for the Laundromat Leases and other Contracts set forth on the
Disclosure Schedule (collectively, "Related Party Contracts"). All Related
Party Contracts represent arms-length transactions, and the terms and
conditions thereof were fair and reasonable, from a financial point of view,
to the Kwik Wash Entities parties thereto.
4.24 Tax Matters.
-----------
(a) Except as explicitly set forth in the attached Disclosure
Schedule:
(i) each of the Partners and the Partnership has (a)
filed all Tax Returns which are required to be filed with respect to all
periods ending on or prior to the Closing Date and each such Tax Return is
correct and complete in all respects, (b) paid all Taxes due and owing by
each of them as of the Closing Date (whether or not shown on any Tax Return)
and (c) withheld and paid over all Taxes which each of them is obligated to
withhold from amounts paid or owing to any Personnel, shareholder, partner,
creditor or other Person;
(ii) no Tax audits are pending or being conducted with
respect to any Partner or the Partnership;
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<PAGE>
(iii) no information related to Tax matters has been requested
by any Taxing authority, and neither any Partner nor the Partnership has
received notice indicating an intent to open an audit or other review from
any Taxing authority and neither any Partner nor the Partnership nor any
officer or director thereof expects or has reason to expect any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed;
(iv) neither the Partnership nor any Partners have
knowledge of any asserted claim (whether in writing or otherwise) by any
Taxing authority concerning any Partner's or the Partnership's liability for
Taxes;
(v) no claim has ever been made by any jurisdiction in
which either Partner or the Partnership does not file Tax Returns to the
effect that the Partnership or any Partner is or may be subject to any Tax
imposed by that jurisdiction;
(vi) neither the Partnership nor any Partners have waived
any statute of limitations in respect of Taxes or agreed to an extension of
time with respect to any Tax assessment or deficiency;
(vii) neither the Partnership nor any Partners are party to any
agreement that could obligate either of them to make any payments that would
not be deductible pursuant to Section 280G of the Code, and neither the
Partnership nor any Partners have filed a consent pursuant to Section 341(f)
of the Code;
(viii) for all taxable periods beginning after August 31, 1991,
the Partners and the Partnership have heretofore delivered to Buyer correct
and complete copies of all federal, state and local income Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by any of them;
(ix) neither the Partnership nor the Partners are party to
any Tax sharing or allocation agreement, and neither the Partnership nor the
Partners have liability for the Taxes of any Person under (SS) 1.1502-6 of the
Treasury Regulations (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract, or otherwise; and
(x) the unpaid Taxes of the Partners, either individually
or in the aggregate, do not exceed, as of the Balance Sheet Date, the reserve
for Tax liabilities set forth on the Balance Sheet, and such unpaid Taxes for
all periods ending on or before the Closing Date shall not exceed that
reserve adjusted to take account of the passage of time through the Closing
Date in accordance with the Partners' past custom and practices in computing
their respective Taxes and filing Tax Returns. The provisions of Section 3
of the Tax Cooperation
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<PAGE>
Agreement referenced in Section 7.9 hereof shall be controlling regarding the
determination of unpaid Taxes as of the Balance Sheet Date and as of the Closing
Date.
(b) The Disclosure Schedule sets forth (and, in accordance with
Section 10.3 hereof, the Disclosure Schedule will set forth, within 45 days
after the Closing Date, on an estimated pro forma basis as of the Closing
Date giving effect to the consummation of the transactions contemplated by
the Transaction Documents), the following information with respect to each of
the Partners and the Partnership for federal income tax purposes as of the
most recent practicable date: (i) the adjusted tax basis of the Partners in
their respective assets and properties, the adjusted tax basis of the
Partnership in the Assets, and the adjusted tax basis of the Sellers in their
stock of the Partners; and (ii) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign Tax, or
excess charitable contribution allocable to any Partner or the Partnership.
(c) Each Partner and the Partnership shall (i) prepare and file
all Tax Returns and pay all Taxes with respect to each Partner and the
Partnership for all taxable periods ending on or before the Closing Date and
(ii) shall pay all Taxes for all taxable periods ending after the Closing
Date to the extent such Taxes are properly attributable to the portion of
such taxable period ending on the Closing Date; provided that for purposes of
this clause (ii) only, the provisions of Section 3 of the Tax Cooperation
Agreement referenced in Section 7.9 hereof shall be controlling for purposes
of determining the amount of Taxes that are properly attributable to the
portion of such taxable period ending on the Closing Date.
(d) The Partnership has at all times since formation qualified
to be treated and classified as a partnership for Tax (including, without
limitation, federal and state income and Texas franchise tax) purposes and
not as an association (or other entity) taxable as a corporation or otherwise.
(e) LP has validly been an S corporation since September 1,
1993, and GP has validly been an S corporation since its inception. Both
corporations and their respective shareholders have filed all elections and
taken any other actions required to perfect S corporation status. Both
Partners have remained qualified as S corporations since the effective date
of their respective S elections through the date of signing this Agreement
and will remain so qualified until the Closing takes place.
4.25 Severance Arrangements. Except as disclosed in the Disclosure
----------------------
Schedule, neither the Partnership nor any of the Partners have entered into
any severance or similar arrangement in respect of any present or former
Personnel that will result in
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<PAGE>
any obligation (absolute or contingent) of Buyer, any Partner or the Partnership
to make any payment to any Person.
4.26 Insurance. The Disclosure Schedule contains a complete and
---------
accurate list of all policies or binders of fire, casualty, liability, title,
worker's compensation, dram shop, liquor liability, earthquake, and other
forms of insurance (showing as to each policy or binder the carrier, policy
number, coverage limits, expiration dates, annual premiums and a general
description of the type of coverage provided) maintained by the Partnership
or any Partner on the Business, Assets or Personnel. All of such policies
are sufficient for compliance with all applicable Legal Requirements and with
all Contracts to which any Partner or the Partnership is a party. The
Partnership is not in default under any of such policies or binders, and the
Partnership has not failed to give any notice or to present any claim under
any such policy or binder in a due and timely fashion nor have any facts or
events occurred which necessitate the giving of notice or filing of a claim
with respect to any such policy. There are no facts known to any Kwik Wash
Entity upon which an insurer might be justified in reducing coverage or
increasing premiums on existing policies or binders. Except as set forth in
the Disclosure Schedule, there are no significant outstanding unpaid claims
under any such policies or binders. Such policies and binders provide
sufficient coverage for the risks insured against, are in full force and
effect on the date hereof and shall be kept in full force and effect by the
Kwik Wash Entities through the Closing Date.
4.27 Payments. None of the Kwik Wash Entities have, directly or
--------
indirectly, paid or delivered any fee, commission or other sum of money or
item or property, however characterized, to any finder, agent, government
official or other Person, in the United States or any other country, which is
in any manner related to the Business which any Kwik Wash Entity knows,
should know or has reason to believe to have been illegal under any
applicable Legal Requirement of the United States or any other country having
jurisdiction; and the Partnership has not participated, directly or
indirectly, in any boycotts or other similar practices affecting any of its
actual or potential Customers or suppliers and has at all times done business
in an open and ethical manner.
4.28 Customers and Suppliers. The Disclosure Schedule contains a
-----------------------
complete and accurate list of (i) the twenty-seven (27) largest Customers in
terms of net revenues during the twelve (12) month period ended October 31,
1996, showing the approximate net revenues (and total coin revenues) from
each such Customer during such fiscal year; (ii) the approximate net revenues
and total revenues for each of the twenty-seven (27) largest Customers during
such fiscal year; and (iii) the three (3) largest suppliers of the
Partnership in terms of Machine and Parts purchases during the Partnership's
last fiscal year, showing the approximate total purchases by the Partnership
from
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<PAGE>
each such supplier during such fiscal year. Since the Balance Sheet
Date, there has been no adverse change in the business relationship of the
Partnership with any of such Customers or suppliers. To the best knowledge
of the Kwik-Wash Entities, there has been no adverse change in the business
relationship between the Partnership and any Customer responsible for annual
net revenues in excess of $240,000.
4.29 Accounts Receivable. The accounts receivable reflected on the
-------------------
Balance Sheet, and all accounts receivable arising since the Balance Sheet
Date, represent bona fide claims against debtors for sales, services
performed or other charges arising on or before the date of this Agreement,
and all the goods delivered and services performed which gave rise to said
accounts were delivered or performed in substantial compliance with the
applicable orders, Contracts or customer requirements. All such accounts
receivable are subject to no defenses, counterclaims or rights of set off
and, using the Partnership's customary billing and collection practices, are
fully collectible in the ordinary course of business without cost to the
Partnership in collection efforts therefor except, in the case of accounts
receivable shown on the Balance Sheet, to the extent of the appropriate
reserves set forth on the Balance Sheet, and, in the case of accounts
receivable arising since the Balance Sheet Date, to a reasonable allowance
for bad debts which does not, to the best knowledge of the Kwik Wash
Entities, reflect a rate of bad debts more than that reflected by the reserve
for bad debts on the Balance Sheet.
4.30 Compliance with Legislation Regulating Environmental Quality.
------------------------------------------------------------
Except as specifically disclosed on the Disclosure Schedule:
(a) The Partnership and the Partners have complied and caused the
Business, the Facilities and any former Facility to comply with all
applicable Legal Requirements to the Business or the Assets, or the use,
generation, treatment, storage, transport, disposal or handling of Hazardous
Substances at or by the Facilities or the former Facilities. There is no
property presently owned or used by the Partnership from which any Release or
existence of Hazardous Substances would result in any violation of any
Environmental and Safety Requirement or Encumbrance upon the Assets,
Facilities or former Facilities. No Hazardous Substance or wetlands exists
at, on, under or around any of the Facilities or former Facilities, and there
has been no Release on, under, about, near or from any Facility or former
Facility.
(b) The Partnership has, and at all times has had, all Permits
required under any Environmental and Safety Requirement and is, and at all
times has been, in compliance therewith. Each Permit will be transferable in
connection with the transactions contemplated by the Transaction Documents no
later than the Closing Date.
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<PAGE>
(c) The Partnership has at all times used, generated, treated,
stored, transported, disposed of or otherwise handled Hazardous Substances in
substantial compliance with all Environmental and Safety Requirements and in
a manner which would not cause the Partnership to be subject to any
Environmental Liabilities.
(d) There is no underground storage tank, containment vessel or
pipeline at, on or under any Facility or former Facility where the
installation, use, maintenance, repair, testing, shut-in or removal of such
tank, vessel, or pipeline was not in compliance with all Environmental and
Safety Requirements, and there has been no Release from any such tank, vessel
or pipeline.
(e) None of the Kwik Wash Entities have received any notice,
inquiry, notice of investigation, claim, or any other correspondence or
communication from any federal, state, county, municipal or other
governmental department, agency, authority or any other Person alleging or in
any way relating to any actual or alleged violation of any Environmental and
Safety Requirement or any Release at, on, under, or emanating from any
Facility, former Facility or any neighboring properties, nor has any Kwik
Wash Entity become aware of the possibility that the Partnership may receive
any such notice, inquiry, claim or other correspondence or communication, nor
is there any pending or threatened suit, action, claim, investigation or
proceeding against the Partnership or any Partner under any Environmental and
Safety Requirement or with respect to any Release.
(f) There are no consent decrees or agreements with, or
Encumbrances by, any governmental authority or quasi-governmental entity
relating to any Environmental and Safety Requirement which bind or could
affect the Partners, the Partnership, the Business or any Facility or former
Facility.
(g) No current or past use, generation, treatment,
transportation, storage, disposal or handling practice of the Partnership or
any Partner during the past five years has or will result in any
Environmental Liability under any Environmental and Safety Requirement.
(h) True, correct and complete copies of all written reports,
and all parts thereof, of all environmental audits or assessments which have
been conducted at any Facility or former Facility within the past five (5)
years, either by the Partnership or any Representative, environmental
consultant or engineer engaged for such purpose, have been made available for
examination by the Buyer.
(i) No federal, state, county, municipal or other governmental
department, agency, or authority has served upon any Kwik Wash Entity any
oral or written notice indicating or alleging a need to make any repair,
remedy, construction,
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<PAGE>
alteration or installation in order to comply with any Environmental and Safety
Requirement, nor is any such action currently necessary.
(j) No Hazardous Substance has ever been disposed of at, on,
under or near any Facility or former Facility by any Kwik Wash Entity or, to
the best knowledge of the Kwik Wash Entities, by any Person, and there are no
on-site facilities or vessels at any Facility or former Facility which are or
have been used for the disposal or burial of Hazardous Substances.
4.31 Misstatements or Omissions. No representations or warranties by
--------------------------
any of the Kwik Wash Entities in any of the Transaction Documents contains or
will contain any untrue statement of material fact, or omits or will omit to
state any material fact necessary to make the statements or facts contained
therein not misleading. The Kwik Wash Entities have disclosed all material
events, conditions and facts affecting the Business, Assets, earnings and
condition (financial or otherwise) of the Partnership and the Partners.
4.32 Key Personnel. The Disclosure Schedule sets forth the number and
-------------
job category of all current Personnel for the twelve (12) month period ended
October 31, 1996, including with respect to such Personnel, their names,
dates of employment and current compensation (including all bonuses or other
incentive compensation payments).
4.33 Solvency. The Partnership (a) owns and will own the Assets, the
--------
fair saleable value of which, on a going concern basis, are greater than (i)
the total amount of liabilities (including contingent liabilities) of the
Partnership, and (ii) the amount that will be required to pay the probable
liabilities of the Partnership's then existing debts as they become due; (b)
has capital that is not unreasonably small in relation to the Business as
presently conducted and as proposed to be conducted; and (c) does not intend
to incur and does not believe that it will incur debts beyond its ability to
pay such debts as they become due.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Sellers as follows:
5.1 Organization of Buyer. Buyer is duly organized, validly existing
---------------------
and in good standing under the laws of the State of Delaware and has full
corporate power and authority to conduct its business and to own and lease
its properties.
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<PAGE>
5.2 Authorization. Buyer has all necessary corporate authority to
-------------
enter into the Transaction Documents and has taken all necessary corporate
action to consummate the transactions contemplated thereby and to perform its
obligations thereunder. Each of the Transaction Documents has been duly
executed and delivered by Buyer and is a valid and binding obligation of
Buyer enforceable against it in accordance with its terms.
5.3 Consents and Approvals. No Permit is required to be made or
----------------------
obtained by Buyer in connection with the execution, delivery and performance
of the Transaction Documents and the consummation of the transactions
contemplated thereby, other than the filings required under the HSR Act and
any Permits required to be obtained by any of the Sellers or the Partnership.
5.4 No Brokers. Neither Buyer nor any Representative or Affiliate of
----------
Buyer has entered into or will enter into any agreement, arrangement or
understanding with any Person which will result in the obligation of Sellers
to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated by the Transaction Documents.
5.5 No Conflict or Violation. Neither the execution and delivery of
------------------------
the Transaction Documents nor the consummation of the transactions
contemplated thereby will result in (a) a violation of or a conflict with any
provision of the certificate of incorporation or bylaws of Buyer, (b) a
breach of, or a default under, any term or provision of any contract,
agreement, Indebtedness, lease, commitment, franchise, Permit, authorization
or concession to which Buyer is a party or (c) a violation by Buyer of any
applicable Legal Requirement, except any such violations, conflicts, breaches
or defaults which, individually or in the aggregate, could not reasonably be
expected to have an Adverse Effect.
ARTICLE 6
ACTIONS BY SELLERS, THE PARTNERS,
THE PARTNERSHIP AND BUYER PRIOR TO THE CLOSING
Each of the Kwik Wash Entities and Buyer, unless otherwise
stated, covenant as follows for the period from the date hereof through the
Closing Date:
6.1 Maintenance of Business. Since the Balance Sheet Date, the
-----------------------
Partnership and the Partners have conducted the Business only in the ordinary
course and consistent with past practices and shall diligently carry on the
Business in the ordinary course consistent with past practices. The
Partnership shall use its best efforts to preserve the goodwill of its
Personnel, suppliers, Customers and others having significant business
relationships with the Partnership. The Partnership shall maintain its
Assets in good condition and make all normal
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<PAGE>
and customary repairs, replacements and improvements to its Machines, Parts and
Facilities in the ordinary course of business, consistent with past practices.
6.2 Obstruction of Purpose. None of the Kwik Wash Entities shall
----------------------
take any action which would cause or tend to cause the conditions of the
obligations of the Parties to effect the transactions contemplated hereby not
to be fulfilled; including without limitation, taking, causing to be taken,
or permitting or suffering to be taken or to exist any action, condition or
event which would cause the representations and warranties made by any of the
Kwik Wash Entities herein not to be true, correct and accurate as of the
Closing Date.
6.3 Certain Prohibited Transactions. Each of the Partners and
-------------------------------
Partnership shall not, and Sellers shall cause the Partnership and each
Partner not to, without the prior written approval of Buyer:
(a) incur any Indebtedness or make any loans or advances to any
Person, other than loans or advances to Related Parties which are made in the
ordinary course of business and consistent with past practices and are
re-paid in full prior to the Closing Date;
(b) issue any Equity Interests of the Partnership or any
Partner;
(c) pay or incur any obligation to pay any dividend on the Stock,
the Partnership Interests or other Equity Interests of any Partner or the
Partnership or make or incur any obligation to make any distribution or
redemption with respect to the Stock, the Partnership Interests or other
Equity Interests of any Partner or the Partnership, except for (i) the
disposition of Title-Link as provided for in Section 6.10 hereof, (ii) the
distribution by the Partnership immediately prior to the Closing Date of
certain assets of the Partnership specifically listed on Schedule 6.3 hereto
and (iii) the distribution by the Partnership to the Sellers of certain
payments relating to estimated tax payments owed by Sellers in respect of the
Partnership; provided, however, that such payments shall not be made out of
-------- -------
cash or cash equivalent reflected on the 1996 Balance Sheet.
(d) make any change to the certificate of limited partnership
of the Partnership or the articles of incorporation or bylaws of any Partner;
(e) (i) take any action that could result in an Encumbrance on the
Business or any of the Assets or the properties or assets of any Partner, or
(ii) sell, transfer or otherwise dispose of the Business or any of the Assets
or of any of the assets or properties of any Partner outside the ordinary
course of business or (iii) cancel, release or assign any
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<PAGE>
Indebtedness owed to it or any claims held by it, except in the ordinary course
of business and consistent with past practices;
(f) make any Investment, except in the ordinary course of
business and consistent with past practices;
(g) enter into or terminate any Contract or make any material
change in any Contract, other than in the ordinary course of business and
consistent with past practices;
(h) increase compensation payable to any Personnel or make any
discretionary bonuses or promise to do any of the foregoing;
(i) enter into any transaction with any Person on terms other
than those which are on an arm's-length basis;
(j) make any payments to or engage in transactions with Affiliates
or Related Parties in each case other than in the ordinary course of business
and consistent with past practices; or
(k) do any other act which would cause any representation or
warranty of any of the Kwik Wash Entities in this Agreement to be or become
untrue;
(l) other than in the ordinary course of business, discharge or
satisfy any Encumbrance or Indebtedness;
(m) other than in the ordinary course of business, institute,
settle or agree to settle any litigation, Action or proceeding before any
court or governmental body;
(n) other than in the ordinary course of business, cancel or
terminate any policies of insurance with respect to the Business or the
Partnership's insurable properties or Assets; or
(o) make any payment out of cash or cash equivalents reflected
on the 1996 Balance Sheet during the period commencing January 1, 1997
through and including the Closing Date, except for any payments relating to
ordinary course, recurring charges consistent with past practices.
Notwithstanding anything in this Section 6.3 to the contrary,
Buyer acknowledges and agrees that the Partnership's change of control
agreement (the "Change of Control Agreement") will provide for aggregate
payments of up to $3,600,000 (the "Change of Control Payments") to certain
key officers and employees (collectively, the "Key Employees") in the event
that more than fifty percent (50%) of the Equity Interests of the Partners or
the Partnership are acquired by any Person that does not currently hold any
Equity Interests in such Partner or the Partnership. Such Change of Control
Agreement provides that (i) the Closing will be a condition precedent to the
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<PAGE>
Partnership's obligation to make any such payments and (ii) except for the
Change of Control Payments, the Key Employees are entitled to no additional
severance or other payments or benefits of any kind from the Partnership or
the Partners on or after the Closing Date.
6.4 Investigation by Buyer. The Kwik Wash Entities shall allow Buyer
----------------------
through Buyer's Representatives, including, without limitation, Buyer's
present and proposed financing sources and their Representatives, subject to
the obligation of confidentiality imposed under Section 12.14 hereof and
subject to Buyer's obligation to coordinate such investigation and
examination with Sellers, access to certain Personnel, to make such
investigation of the Business, properties, books, records, condition
(financial or otherwise) and other matters of the Partnership, and to conduct
such examination of the condition of the Partnership, as Buyer and such
financing sources and their respective Representatives deem necessary or
advisable, in their sole and absolute discretion, to become familiar with
such Business, properties, books, records, condition (financial or otherwise)
and other matters, and to verify the representations and warranties of each
of the Kwik Wash Entities under the Transaction Documents.
6.5 Consents and Best Efforts. Within five (5) business days after
-------------------------
execution and delivery of this Agreement, Buyer and each of the Kwik Wash
Entities shall make all governmental filings required in connection with the
transactions to be consummated pursuant to the Transaction Documents
including, without limitation, filings under the HSR Act. Each of the Kwik
Wash Entities will, as promptly as practicable, commence to take all action
required to obtain all Permits and to give all notices and make all other
filings with or from any Persons, including all Consenting Parties, in each
case as necessary to authorize, approve or permit the full and complete sale,
conveyance, assignment or transfer of the Stock in accordance with the terms
and conditions of this Agreement, and Buyer shall cooperate with Seller with
respect thereto. In addition, subject to the terms and conditions herein
provided, each of the Parties covenants and agrees to use its best efforts to
take, or cause to be taken, all action or do, or cause to be done, all things
necessary, proper or advisable under applicable Legal Requirements to
consummate and make effective the transactions contemplated by the
Transaction Documents and to cause the fulfillment of the Parties'
obligations hereunder.
6.6 Termination of Excluded Contracts. Prior to the Closing Date,
---------------------------------
each of the Kwik Wash Entities shall use their best efforts to take, or cause
to be taken, all actions or do, or cause to be done, all things necessary
(including obtaining any necessary consents from any Consenting Parties) to
terminate each Excluded Contract.
- 41 -
<PAGE>
6.7 Notification of Certain Matters. Sellers shall give prompt
-------------------------------
notice to Buyer, and Buyer shall give prompt notice to Sellers, of (i) the
occurrence or existence, or failure to occur or exist, of any fact,
information or event, which occurrence or existence or failure would be
likely to cause any representation or warranty contained in this Agreement to
be untrue or inaccurate any time from the date hereof through and including
the Closing Date and (ii) any failure of any of the Kwik Wash Entities or
Buyer, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied hereunder, and each Party shall
use its best efforts to remedy same.
6.8 HSR Act Approval. In addition to and without limiting the
----------------
covenants contained herein, the Kwik Wash Entities and Buyer shall (i)
promptly take all actions necessary to make any filings required of any of
them under the HSR Act, (ii) comply at the earliest practicable date with any
request for additional information from the Federal Trade Commission or the
Antitrust Division of the Department of Justice pursuant to the HSR Act, and
(iii) cooperate with each other in connection with the filings by or on
behalf of each of them under the HSR Act with respect to the transactions
contemplated by the Transaction Documents and in connection with resolving
any investigation or other inquiry concerning the transactions contemplated
by the Transaction Documents commenced by either the Federal Trade Commission
or the Antitrust Division of the Department of Justice or any state attorney
general.
6.9 Exclusivity. From the date of this Agreement until this
-----------
Agreement is terminated pursuant to Section 12.1 hereof, none of the Kwik
Wash Entities nor their respective Affiliates or Representatives will,
directly or indirectly:
(a) solicit, initiate or encourage the submission of inquiries,
proposals or offers from any Person relating to any Investment in, or any
acquisition or purchase of the Stock, the Partnership Interests, the
Business, the Assets or any interest in any Partner or the Partnership, or
any tender or exchange offer, merger, consolidation, business combination,
recapitalization, spin-off, liquidation, winding up, dissolution or similar
transaction involving, directly or indirectly, any Partner or the Partnership
(each, an "Acquisition Proposal");
(b) participate, directly or indirectly, in any discussions or
negotiations regarding any Acquisition Proposal or furnish to any Person
information concerning either the Partnership or any Acquisition Proposal for
use in connection with any Acquisition Proposal;
(c) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person to make or enter into an agreement with respect to any Acquisition
Proposal; or
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<PAGE>
(d) provide information with respect to the Business to any
Person other than Buyer, its lenders and its Affiliates and their respective
Representatives, other than information which is traditionally provided in
the ordinary course of business to Persons where the Kwik Wash Entities and
their respective Affiliates and Representatives have no reason to believe
that such information may be utilized to evaluate any Acquisition Proposal.
6.10 Title-Link Disposition. Prior to the Closing Date, Sellers shall
----------------------
cause the Partnership to, and the Partnership shall, divest itself of any
interest or obligation of any kind whatsoever in and to Title-Link in a
manner which does not adversely affect the Partnership or the Partners and
that is reasonably acceptable to Buyer.
6.11 Payment of Certain Accrued Liabilities. Prior to the Closing
--------------------------------------
Date, the Partnership (a) shall pay to certain Personnel in an aggregate
amount not to exceed $527,780, the incentive bonuses owing to such Personnel
under the Partnership's incentive compensation plan which have accrued as of
December 31, 1996 and (b) may fund, in an aggregate amount not to exceed
$208,015, the matching and discretionary profit sharing contributions under
the Partnership's profit-sharing plan which have accrued as of December 31,
1996.
6.12 Kwik Wash Profit Sharing Plan.
-----------------------------
(a) Sellers and/or the Partners shall cause the Partnership to,
and the Partnership shall, terminate the Kwik Wash Employees' Profit Sharing
and 401(k) Plan (the "401(k) Plan") prior to the Closing Date and shall take
all actions necessary to effectuate such termination.
(b) Sellers, the Partners and/or the Partnership shall take all
necessary actions to obtain prior to the Closing Date or as soon as
practicable thereafter, a determination letter from the Internal Revenue
Service with respect to the 401(k) Plan as restated and amended effective
July 1, 1996.
(c) Sellers, the Partners and/or the Partnership shall take all
necessary actions to ensure that for the plan year ended August 31, 1996, the
401(k) Plan has complied in operation with all applicable requirements under
the Code including, but not limited to, (i) the actual deferral percentage
requirements under Code Section 401(k), (ii) the actual contribution
percentage requirements under Code Section 401(m), (iii) the limitations on
elective deferrals under Code Section 401(a)(30), and (iv) the limitations on
contributions under Code Section 415.
6.13 Resignation of Certain Employees. Sellers and/or the Partners
--------------------------------
shall use their best efforts to cause each of the Key Employees to, and each
of the Key Employees shall, on or prior to the Closing Date, resign in all
capacities as employees
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<PAGE>
of the Partnership and submit to the Partnership and Buyer written evidence of
such resignations as well as general releases in favor of the Partnership and
the Partners, in each case in form and substance reasonably acceptable to Buyer.
ARTICLE 7
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers to transfer the Stock to Buyer on the
Closing Date are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions:
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of Buyer contained in this Agreement shall be true and correct
in all material respects at and as of the Closing Date as if such
representations and warranties were made at and as of the Closing Date, and
Buyer shall have performed in all material respects all agreements and
covenants required hereby to be performed by it prior to or at the Closing
Date. There shall be delivered to Sellers a certificate signed by the
President, the Chief Financial Officer or a Senior Vice President of Buyer to
the foregoing effect.
7.2 Consents. All Permits necessary to permit Sellers to transfer
--------
the Stock to Buyer as contemplated by the Transaction Documents shall have
been obtained, unless the failure to obtain any such Permits would not,
individually or in the aggregate, result in a material adverse effect on
Sellers.
7.3 No Governmental Proceeding or Litigation. No suit, action,
----------------------------------------
investigation, inquiry or other proceeding by any governmental authority or
other Person shall have been instituted which questions the validity or
legality of the transactions contemplated by the Transaction Documents and
which could reasonably be expected to damage Sellers in any material respect
if the transactions contemplated thereunder are consummated.
7.4 Certificates. Buyer will furnish Sellers with (a) such
------------
certificates of its officers, directors and others to evidence compliance
with the conditions set forth in this Article 7 as may be reasonably
requested by Sellers and (b) a certificate of good standing of CLC from the
Secretary of State of the State of Delaware.
7.5 Corporate Documents. Sellers shall have received from Buyer
-------------------
resolutions adopted by the board of directors of Buyer approving the
Transaction Documents and the transactions contemplated thereby, certified by
Buyer's corporate secretary.
7.6 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
- 44 -
<PAGE>
7.7 Compliance with Legal Requirements. The consummation of the
----------------------------------
transactions contemplated by the Transaction Documents will not be prohibited
by any applicable Legal Requirement or subject the Sellers to any penalty,
liability or other onerous condition arising out of any such Legal
Requirement.
7.8 Opinion of Counsel. Buyer shall have delivered to Sellers an
------------------
opinion of counsel for Buyer in form and substance reasonably acceptable to
Sellers' counsel, dated the Closing Date.
7.9 Tax Cooperation Agreement. Buyer, Sellers, the Partners, and the
-------------------------
Partnership shall have entered into the Tax Cooperation Agreement,
substantially in the form of Exhibit D attached hereto.
7.10 Agreement Among Creditors. Sellers and the creditors of CLC who
-------------------------
are providing the financing for the transactions contemplated in this
Agreement shall have entered into an Agreement Among Creditors, in form and
substance reasonably satisfactory to each of the parties thereto, setting
forth the relative rights and obligations among such lenders and Sellers with
respect to the outstanding capital stock of Buyer securing payment of (i) the
indebtedness owed to such lenders and (ii) the Note.
7.11 Purchase and Sale of Dallas Property. Buyer and the owner or
------------------------------------
owners of the Facilities located at 4322-4330 Bronze Way and 4240 Bronze Way,
Dallas, Texas (collectively, the "Dallas Property") shall have entered into a
purchase agreement in respect of Buyer's purchase of the Dallas Property.
The purchase price for the Dallas property shall be the fair market value of
the Dallas Property as determined pursuant to this Section 7.11. Such
purchase agreement shall be on terms and conditions (including, without
limitation, the completion of environmental and Hazardous Material analysis
in scope, form and substance reasonably acceptable to Buyer) reasonably
satisfactory to Buyer and the owner or owners of the Dallas Property. The
fair market value of the Dallas Property shall be determined by the mutual
agreement of Buyer and the owner or owners of the Dallas Property provided,
--------
however, that should such parties fail to agree on the fair market value of
- -------
the Dallas Property on or before December 15, 1996, Buyer and the owner or
owners of the Dallas Property shall each, at their own expense, choose an
appraiser (qualified by an "M.A.I." designation and who has been active
during the 1996 calendar year in appraising commercial and industrial
properties in Dallas, Texas) to determine the fair market value of the Dallas
Property. If the appraisals submitted by the two appraisers agree, or the
fair market value determined by the
- 45 -
<PAGE>
higher of such two appraisals is no more than 110% of the fair market value
determined by the lower of such two appraisals, the fair market value of the
Dallas Property shall be the average of such two appraisals. If the fair market
value determined by the higher of such two appraisals is more than 110% of the
fair market value determined by the lower of such two appraisals, the two
appraisers shall jointly appoint a third appraiser (qualified by an "M.A.I."
designation and who has been active during the 1996 calendar year in appraising
commercial and industrial properties in Dallas, Texas) whose fee shall be
equally shared by the Buyer and the owner or owners of the Dallas Property. The
third appraiser shall independently determine a fair market value of the Dallas
Property. The third appraiser's decision shall be binding on Buyer and the owner
or owners of the Dallas Property.
ARTICLE 8
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer to purchase the Stock from Sellers on
the Closing Date are subject, in the sole and absolute discretion of Buyer,
to the satisfaction, on or prior to the Closing Date, of each of the
following conditions:
8.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of the Kwik Wash Entities contained in this Agreement shall be
true and correct in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing Date,
and each of the Kwik Wash Entities shall have performed all agreements and
covenants required hereby to be performed by any of them prior to or at the
Closing Date. There shall be delivered to Buyer a certificate, signed by
each of the Sellers and Richard Enthoven, President of GP and Chairman of the
Board of LP, to the foregoing effect.
8.2 Consents. All Permits necessary to permit Sellers to transfer
--------
the Stock to Buyer as contemplated by the Transaction Documents shall have
been duly made or obtained.
8.3 No Governmental Proceeding or Litigation. No Action shall have
----------------------------------------
been instituted or threatened by any governmental or regulatory authority or
other Person which questions the validity or legality of the transactions
contemplated hereby.
8.4 Compliance with Legal Requirements. The consummation of the
----------------------------------
transactions contemplated by the Transaction Documents will not be prohibited
by any Legal Requirement or subject the Buyer, the Sale, the Business, the
Stock, the Partnership Interests or the Assets to any penalty, liability or
other onerous condition arising out of any such Legal Requirement.
8.5 Opinion of Counsel. Sellers shall have delivered to Buyer an
------------------
opinion of counsel for the Kwik Wash Entities in form and substance
acceptable to Buyer's counsel, dated the Closing Date.
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<PAGE>
8.6 Certificates and Corporate Documents. The Kwik Wash Entities
------------------------------------
shall furnish Buyer with such documents and certificates of the Sellers and
the respective officers of the other Kwik Wash Entities (without
qualification with respect to knowledge) and others to evidence compliance
with the conditions set forth in this Article 8 as may be reasonably
requested by Buyer, including without limitation:
(a) a certificate of each Seller (without qualification
as to knowledge), and an Officer's Certificate of each of the Partnership,
the Partners, and, if applicable, the Sellers, dated the Closing Date, each
certifying that the conditions specified in Sections 8.1, 8.2, 8.3, 8.4 and
8.10 have been fully satisfied;
(b) copies of resolutions, certified by the appropriate
officers where applicable, duly adopted by the Partners, the Partnership and,
if applicable, by the boards of directors and stockholders of each of the
other Kwik Wash Entities authorizing their respective execution, delivery and
performance of the Transaction Documents to which they are a party and the
consummation of the Sale and all other transactions contemplated by the
Transaction Documents;
(c) certificates as to the good standing (or other
certificates relating to the right to do business) of the Partners and the
Partnership from the Secretary of the State of Texas, Nevada and each other
State in which the Partnership or the Partners are required to be qualified
to do business;
(d) such bill(s) of sale, warranty deeds, warranty
assignments of leases and all other instruments of conveyance which the Buyer
reasonably requests in order to effect the Sale;
(e) a true and complete list of all active Personnel
engaged in the conduct of the Business on the Closing Date, including any
such Personnel who on the Closing Date are on leaves of absence which have
been approved in accordance with the past practices of the Partnership;
(f) certificate of limited partnership of the Partnership
and related partnership formation documents and certificates of incorporation
and bylaws of each of the Partners, including ledger or stock and partnership
interest transfer books of the Partnership and the Partners; and
(g) such other documents relating to the transactions
contemplated by the Transaction Documents as the Buyer reasonably requests.
8.7 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
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<PAGE>
8.8 Disclosure Schedules. The Kwik Wash Entities shall have
--------------------
delivered to Buyer at least five (5) business days prior to the Closing Date
a Disclosure Schedule (the "Closing Disclosure Schedule") revised to reflect
any changes in the information on the Disclosure Schedule from the date
hereof up to and including the Closing Date, which Closing Disclosure
Schedule shall be made a part of this Agreement and incorporated herein by
reference and which Closing Disclosure Schedule shall be in form and
substance reasonably acceptable to Buyer in all material respects.
8.9 Balance Sheet and Financial Statements. Sellers shall have
--------------------------------------
delivered to Buyer each month as available from the Balance Sheet Date
through the Closing Date, in each case, promptly upon completion, monthly
balance sheets and financial statements for each of the Partners and the
Partnership, in each case in form and substance acceptable to Buyer
(collectively, "Interim Financial Statements"). Such Interim Financial
Statements need not be audited, but shall be in accordance with generally
accepted accounting principles, consistently applied.
8.10 Termination of Excluded Contracts. Sellers and the Kwik Wash
---------------------------------
Entities, as applicable, shall have terminated the Excluded Contracts, in
accordance with Section 6.6.
8.11 Due Diligence. Buyer shall have obtained from each of the Kwik
-------------
Wash Entities and their respective Representatives, copies of any and all
corporate and partnership documents, securities agreements, purchase
contracts, commercial loan agreements, litigation documents, audit reports,
studies, financial statements, governmental reports, insurance policies,
employment records, employee benefit plans, Permits, applications for Permits
and all other information or documents requested by Buyer.
8.12 Consulting Agreement. Richard Enthoven and the Partnership shall
--------------------
have entered into a consulting agreement substantially in the form of Exhibit
E attached hereto.
8.13 Escrow Agreement. Buyer and Sellers shall have entered into the
----------------
Escrow Agreement, substantially in the form of Exhibit C attached hereto.
---------
8.14 FIRPTA Certificates. Sellers shall have delivered to Buyer
-------------------
appropriate affidavits for each Seller pursuant to Section 1445(b) of the
Code exempting Buyer from any obligation to withhold pursuant to Section
1445(a) of the Code.
8.15 Payout Letter and Release. Sellers shall have delivered to Buyer
-------------------------
a payout letter and release from NationsBank releasing the Kwik Wash Entities
and Buyer from any and all obligations relating to or arising out of that
certain credit agreement entered into between NationsBank and the Partnership
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<PAGE>
and the guarantees of all the obligations thereunder by the Partners.
8.16 Renewal Options on Laundromat Leases. Prior to the Closing Date,
------------------------------------
each Laundromat Lease that is a Related Party Contract (individually, a
"Related Party Laundromat Lease" and collectively, the "Related Party
Laundromat Leases") shall be terminated, and, in the reasonable discretion of
Sellers, a new master Related Party Laundromat Lease or new individual
Related Party Laundromat Leases, or some combination thereof, shall be
entered into between the Partnership and, in the reasonable discretion of the
Sellers, the current lessor of the Related Party Laundromat Leases or a new
Person to whom some or all of the real properties which are the subject of
the Related Party Laundromat Leases have been assigned. Such amended or new
Related Party Laundromat Lease or Leases shall (a) be in form and substance
reasonably acceptable to each of the parties thereto, (b) provide for rent
payable under each of the new related Party Laundromat Leases at the rent
rate reflected on Schedule 8.16 attached hereto, (c) provide for an initial
lease term commencing on January 1, 1997 and ending on December 31, 2001 (the
"Initial Laundromat Term"), and (d) contain a renewal option provision
entitling the Partnership to renew such new Related Party Laundromat Leases
in whole, but not in part, for an additional five year term commencing on the
date of termination of the Laundromat Term and on the same terms and
conditions applicable to the Laundromat Term, provided, however, that the
-------- -------
lessor or lessors of such new Related Party Laundromat Lease or Leases shall
be entitled, with respect to such additional five year term, to increase the
rent payable under each new Related Party Laundromat Lease in accordance with
the terms of Schedule 8.16.
8.17 Facility Leases. The Lease relating to the Facility located in
---------------
Houston, Texas (the "Houston Facility Lease") shall be terminated, and a new
Houston Facility Lease shall be entered into between the Partnership and the
current lessor of the Houston Facility prior to the Closing Date. Such new
Houston Facility Lease shall (a) be in form and substance reasonably
acceptable to the partis thereto, (b) provide for a lease term commencing on
January 1, 1997 and ending three (3) months after the Closing Date and shall,
at the termination of such lease term, continue on a month to month basis
thereafter terminable by either the lessor under such new Houston Facility
Lease or the Partnership on thirty (30) days prior written notice, and (c)
provide for rent payable under the new Houston Facility Lease at the rent
rate reflected on Schedule 8.17 attached hereto. The Leases relating to the
facilities located in Austin, Corpus Christi and San Antonio, Texas and
Shreveport, Louisiana (collectively, the "Other Related Party Facilities
Leases") shall be terminated, and new Other Related Party Facilities Leases
entered into prior to Closing between the Partnership and the current lessor
of each of the Other Related Party Facilities Leases. Such new Other Related
Party Facilities Leases shall (a) be in form and substance reasonably
acceptable to the parties
- 49 -
<PAGE>
thereto, (b) provide for rent payable under each of the new Other Related Party
Facilities Leases at the rent rate reflected on Schedule 8.17 attached hereto,
(c) provide for an initial lease term commencing on January 1, 1997 and ending
on December 31, 2000 (the "Initial Facility Term"), (d) contain a renewal option
provision entitling the Partnership to renew each of such new Other Related
Party Facilities Leases for an additional five (5) year term commencing on the
date of termination of the Facility Term and on the same terms and conditions
applicable to the Facility Term.
8.18 Purchase and Sale of Dallas Property. Buyer and the owner or
------------------------------------
owners of the Dallas Property shall have entered into a purchase agreement in
respect of Buyer's purchase of the Dallas Property. The purchase price for
the Dallas property shall be the fair market value of the Dallas Property as
determined pursuant to this Section 8.18. Such purchase agreement shall be
on terms and conditions (including, without limitation, the completion of
environmental and Hazardous Material analysis in scope, form and substance
reasonably acceptable to Buyer) reasonably satisfactory to Buyer and the
owner or owners of the Dallas Property. The fair market value of the Dallas
Property shall be determined by the mutual agreement of Buyer and the owner
or owners of the Dallas Property provided, however, that should such parties
-------- -------
fail to agree on the fair market value of the Dallas Property on or before
December 15, 1996, Buyer and the owner or owners of the Dallas Property shall
each, at their own expense, choose an appraiser (qualified by an "M.A.I."
designation and who has been active during the 1996 calendar year in
appraising commercial and industrial properties in Dallas, Texas) to
determine the fair market value of the Dallas Property. If the appraisals
submitted by the two appraisers agree, or the fair market value determined by
the higher of such two appraisals is no more than 110% of the fair market
value determined by the lower of such two appraisals, the fair market value
of the Dallas Property shall be the average of such two appraisals. If the
fair market value determined by the higher of such two appraisals is more
than 110% of the fair market value determined by the lower of such two
appraisals, the two appraisers shall jointly appoint a third appraiser
(qualified by an "M.A.I." designation and who has been active during the 1996
calendar year in appraising commercial and industrial properties in Dallas,
Texas) whose fee shall be equally shared by the Buyer and the owner or owners
of the Dallas Property. The third appraiser shall independently determine a
fair market value of the Dallas Property. The third appraiser's decision
shall be binding on Buyer and the owner or owners of the Dallas Property.
8.19 Tax Cooperation Agreement. Buyer, Sellers, the Partners, and the
-------------------------
Partnership shall have entered into the Tax Cooperation Agreement,
substantially in the form of Exhibit D attached hereto.
---------
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<PAGE>
8.20 Change of Control Agreement. Sellers shall have delivered to
---------------------------
Buyer the Change of Control Agreement in form and substance reasonably
satisfactory to Buyer.
ARTICLE 9
COVENANT NOT TO COMPETE
9.1 Covenant Not to Compete. The Kwik Wash Entities acknowledge and
-----------------------
agree that the Business is conducted primarily in the States of Texas,
Louisiana, Oklahoma, Arkansas and Mississippi and that the reputation and
goodwill of the Partnership and the Partners are an integral part of their
business success throughout the areas where the Partnership conducts the
Business. If Sellers deprive Buyer of any of the Partnership's goodwill or
in any manner utilize the Partnership's reputation and goodwill in
competition with the Partnership, Buyer will be deprived of the benefits it
has bargained for pursuant to this Agreement. Accordingly, as an inducement
for Buyer to enter into this Agreement, Sellers agree that, for a period of
eight (8) years after the Closing, no Seller shall, without Buyer's prior
written consent, directly or indirectly, (i) own, manage, operate, join,
control or participate in the ownership, management, operation or control of,
or be connected as a director, officer, employee, partner, consultant or
otherwise with, any profit or non-profit business or organization in any part
of the United States which, directly or indirectly competes with the
Business, including, without limitation, the State of Texas, the State of
Louisiana, the State of Oklahoma, the State of Arkansas and the State of
Mississippi, (ii) in any manner induce or attempt to induce any Personnel,
Customer, supplier, licensee, or other business relation of the Partnership
to leave or cease doing business with the Partnership or in any way interfere
with the relationship between the Partnership and any Personnel, Customer,
supplier, licensee or other business relation thereof, or (iii) hire or
solicit for employment any Personnel or other Person employed by the
Partnership or any Partner on or at any time within six (6) months prior to
the Closing Date. Sellers agree that such solicitation includes, without
limitation, offering any employment to any such Personnel or other Person
commencing after the non-solicitation period. Sellers agree to maintain in
confidence, and not to disclose to any Person, Proprietary Rights, including,
without limitation, copies of any Location Contracts, Laundromat Leases or
other Contracts, Customer and supplier lists of the Partnership, ideas,
methods, developments, inventions, improvements and business plans and
information which are the confidential information of the Partnership. In
the event the agreement in this Article 9 shall be determined by any court of
competent jurisdiction to be unenforceable by reason of its extending for too
great a period of time or over too great a geographical area or by reason of
its being too extensive in any other respect, it shall be interpreted to
extend over the maximum period of time for which it may be
- 51 -
<PAGE>
enforceable, and/or over the maximum geographical area as to which it may be
enforceable and/or to the maximum extent in all other respects as to which it
may be enforceable, all as determined by such court in such action.
9.2 Tax Allocation. Sellers and Buyer agree that $500,000 of the
--------------
Purchase Price being paid by Buyer to Sellers pursuant to Section 2.2 hereof
is being paid for the restrictive covenants provided for in Section 9.1
hereof. Sellers and Buyer agree not to take any position inconsistent with
such allocation for any Tax purpose.
9.3 Permitted Activities. Notwithstanding anything contained in
--------------------
Section 9.1 to the contrary, Buyer acknowledges and agrees that: (a) the
leasing of real property to any Person (including any competitor of Buyer or
the Partnership) by any of the Sellers or the Related Parties; and (b) the
hiring or other engagement of Personnel (who have been terminated and are no
longer employed in any capacity by the Partnership after the Closing Date) by
Sellers or Seller's Affiliates at any time after the six-month period
following the Closing Date shall not constitute a violation of the provisions
of this Article 9; provided, however, that:
-------- -------
(i) prior to entering into any Lease for the purpose of operating
a laundromat (any such Lease, a "Seller Laundromat Lease"), Sellers
shall give written notice (the "Lease Notice") to Buyer disclosing in
reasonable detail the terms and conditions of such Seller Laundromat
Lease and the identity of the proposed lessee;
(ii) without Buyer's prior written consent, Sellers shall not
enter into any such Seller Laundromat Lease prior to the period ending
fifteen (15) days after the Lease Notice has been received by Buyer
(the "Lease Notice Period");
(iii) during the Lease Notice Period, Buyer (including any
designee of Buyer) may elect to enter into such Seller Laundromat Lease
upon the same terms and conditions as those set forth in the Lease
Notice by delivering a written notice of such election to Richard
Enthoven, as agent for and on behalf of the Sellers, prior to the end
of the Lease Notice Period;
(iv) if Buyer (A) determines not to enter into any such Seller
Laundromat Lease on the terms set forth in the applicable Lease Notice
or (B) fails to respond to the Lease Notice within the Lease Notice
Period, Sellers may enter into such Seller Laundromat Lease on terms no
more favorable than those specified in the Lease Notice during the
60-day period immediately following the last day of the Lease Notice
Period, provided that any such Seller Laundromat Lease not consummated
within such 60-day period will again
- 52 -
<PAGE>
be subject to the terms and conditions of this Section 9.3; and
(v) Any of the Sellers or the Related Parties shall be free to
offer employment to, and hire, any of the Personnel listed on Exhibit F
---------
attached hereto.
9.4 Irreparable Damage Upon Breach. Sellers acknowledge that a
------------------------------
breach of the covenants contained in this Article 9 will cause irreparable
damage to Buyer, the Partners and the Partnership, the exact amount of which
will be difficult to ascertain, and that the remedies at law for any such
breach will be inadequate. Accordingly, Sellers agree that, if Sellers
breach any of the covenants contained in this Article 9 in addition to any
other remedy which may be available at law or in equity, Buyer, the Partners
or the Partnership shall be entitled to specific performance and injunctive
relief, without posting bond or other security.
9.5 Payment Default Under the Note. If CLC fails to pay principal or
------------------------------
interest on the Note within six (6) months after such principal or interest
is due, the provisions of this Article 9 shall immediately become null and
void and shall have no further force and effect.
ARTICLE 10
ACTIONS BY THE KWIK WASH ENTITIES
AND BUYER AFTER THE CLOSING
10.1 Books and Records. Sellers and Buyer agree that, so long as any
-----------------
books, records and files relating to the Business, properties, Assets or
operations of the Partnership, to the extent that they pertain to the
Business prior to the Closing Date, remain in existence and available, each
Party (at its expense) shall have the right to inspect and to make copies of
the same at any time during business hours for any proper purpose.
10.2 Further Assurances. On and after the Closing Date, each Party
------------------
will take all appropriate action and execute all documents, instruments or
conveyances of any kind which may be reasonably necessary or advisable to
carry out any of the provisions hereof, including without limitation, putting
Buyer in possession and operating control of the Business.
10.3 Pro Forma Tax Basis. Within 45 days after the Closing Date,
-------------------
Sellers will deliver to Buyer an estimated pro forma basis, with respect to
each of the Partners and the Partnership, as of December 31, 1996, giving
effect to the consummation of the transactions contemplated by the
Transaction
- 53 -
<PAGE>
Documents. Upon delivery to Buyers, such estimated pro forma
basis shall be deemed to be a part of the Disclosure Schedule.
ARTICLE 11
INDEMNIFICATION
11.1 Survival of Representations, etc. All statements contained in the
--------------------------------
Disclosure Schedule or in any certificate or instrument of conveyance
delivered by or on behalf of the Parties pursuant to this Agreement or in
connection with the transactions contemplated by the Transaction Documents
shall be deemed to be representations and warranties by the Parties
hereunder. The representations and warranties of each of the Kwik Wash
Entities and Buyer contained herein shall survive the Closing Date for a
period of two (2) years, but shall thereafter terminate and be of no further
force or effect; provided, however, that (a) the representations and
-------- -------
warranties set forth in Sections 4.7, 4.8, 4.9, 4.13, 4.19, 4.20, 4.21, 4.22,
4.23, 4.24 (except for those representations and warranties in Section
4.24(b) which shall terminate on April 15, 1998), 4.26, 4.27, 4.29, 4.30 and
4.32 hereof shall survive until the expiration of the applicable statutes of
limitations (and any extensions thereof including with respect to
Section 4.24 only, an additional 90 days thereafter), (b) the representations
and warranties contained in Sections 4.1, 4.3, 4.5, 4.6 and in the first
sentence of Sections 4.2 and 4.4, hereof shall survive the Closing and
continue in full force and effect forever, and (c) the obligations of the
Buyer under the Note (and any provisions of this Agreement related thereto)
shall survive the Closing and continue in full force and effect until the
Note (including principal and interest due thereunder) is paid in full.
Anything to the contrary contained in this Agreement notwithstanding, the
termination or expiration of any representation or warranty or
indemnification obligation under this Article 11 shall not affect any claims
made in writing by any Indemnified Person hereunder prior to such expiration
or termination. All covenants and agreements of the Parties contained in
this Agreement shall survive the Closing Date.
11.2 Indemnification.
---------------
(a) In addition to any other right or remedy available to Buyer at
law or in equity, Sellers shall, jointly and severally, indemnify Buyer, the
Partners and the Partnership and their respective Affiliates, Representatives
and permitted successors and assigns (collectively, the "Buyer's
Indemnitees") against, and hold each Buyer Indemnitee harmless from, any
diminution in value, demand, damage, claim, action, cause of action,
deficiency, fine, liability, Tax or other loss or expense including, without
limitation, interest, penalties and attorneys' fees and expenses
(collectively, "Damages") arising out of or resulting from (i) any
inaccuracy, misrepresentation or breach of any warranty, covenant or
agreement of any of the Kwik Wash
- 54 -
<PAGE>
Entities contained in this Agreement, including any Damages arising out of
transactions entered into or events occurring prior to the Closing, except as
disclosed or explicitly provided in this Agreement or in the Disclosure
Schedule, (ii) any act or omission by any of the Kwik Wash Entities as a result
of which, in whole or in part, any Buyer Indemnitee is made a party to, or
otherwise incurs any Damage pursuant to, any action, suit, claim or proceeding
arising out of or relating to any such act or omission, including, without
limitation, claims with respect to which the Partnership is self-insured, (iii)
the Excluded Contracts, (iv) Title-Link, including, without limitation, the
Partnership's ownership interest in or conduct of the business thereof or
(v) any Excluded Obligations (to the extent not covered by the adjustment to
Purchase Price set forth in Section 2.3(a) hereof); provided, however, that
except as set forth in Section 11.4 hereof, Seller's obligations hereunder with
respect to breaches of the Sellers' representations and warranties contained in
Article IV hereof shall not exceed in the aggregate $15,000,000, and such
indemnification obligations may be offset dollar for dollar against the Note and
any principal payments made thereunder, in each case in accordance with the
terms of the Escrow Agreement. Notwithstanding anything in Section 11.2 of this
Agreement to the contrary, no Indemnifying Party shall be required to indemnify
any Indemnified Party in respect of any Damages covered by clause (i) of this
Section 11.2 except to the extent that the aggregate amount of all Damages
exceeds $100,000, in which event the Indemnifying Party will be required to
indemnify the Indemnified Party for all such Damages, including the amounts up
to $100,000.
(b) In addition to any other right or remedy available to
Sellers at law or in equity, Buyer shall indemnify and hold Sellers and its
Affiliates, Representatives and permitted successors and assigns
(collectively, the "Sellers' Indemnitees") against, and hold each Sellers'
Indemnitee harmless from any Damages arising out of a misrepresentation or
the breach of any warranty, covenant or agreement of Buyer contained in this
Agreement.
The term "Damages" as used in this Section 11.2 is not limited to
matters asserted by any Persons against Sellers, the Partners, the
Partnership or Buyer, but includes Damages incurred or sustained by Sellers,
the Partners, the Partnership or Buyer in the absence of claims by other
Persons.
11.3 Indemnification Procedures.
--------------------------
(a) Notice of Claim. Any Person making a claim for indemnification
---------------
pursuant to Section 11.2 (an "Indemnified Party") must give any Party hereto
from whom indemnification is sought (an "Indemnifying Party") written notice
of such claim (an "Indemnification Claim Notice") promptly after the
Indemnified Party receives any written notice of any action, lawsuit,
proceeding, investigation or other claim or potential claim (a
- 55 -
<PAGE>
"Proceeding") against or involving the Indemnified Party by any government
entity or other Person or otherwise discovers or becomes aware of the liability,
obligation or facts giving rise to such claim for indemnification; provided that
the failure to notify or delay in notifying an Indemnifying Party will not
relieve any Indemnifying Party of its obligations pursuant to Section 11.2.
(b) Control of Defense. With respect to the defense of any
------------------
Proceeding against or involving an Indemnified Party in which a governmental
entity or other Person in question seeks only the recovery of a sum of money
for which indemnification is provided, at its option an Indemnifying Party
may appoint as lead counsel of such defense any legal counsel selected by the
Indemnifying Party; provided that before the Indemnifying Party assumes
--------
control of such defense it must first:
(i) enter into an agreement with the Indemnified Party (in form
and substance satisfactory to the Indemnified Party) pursuant
to which the Indemnifying Party agrees to be fully responsible
(with no reservation of any rights other than the right to be
subrogated to the rights of the Indemnified Party) for all
Damages relating to such Proceeding and unconditionally
guarantees the payment and performance of any liability or
obligation which may arise with respect to such Proceeding or
the facts giving rise to such claim for indemnification; and
(ii) furnish the Indemnified Party with reasonable assurance that
the Indemnifying Party has the financial capacity to defend
such Proceeding and to satisfy any such liability.
(c) Control of Defense: Exceptions, etc. Notwithstanding the
------------------------------------
provisions of Section 11.3(b): (i) the Indemnified Party will be entitled to
participate in the defense of such claim and to employ counsel of its choice
for such purpose at its own expense (provided that the Indemnifying Party
--------
will bear the reasonable fees and expenses of such separate counsel incurred
prior to the date upon which the Indemnifying Party effectively assumes
control of such defense), (ii) the Indemnifying Party will not be entitled to
assume control of the defense of such claim, and will pay the fees and
expenses of legal counsel retained by the Indemnified Party, if:
(i) the Indemnified Party reasonably believes that an adverse
determination of such Proceeding could be detrimental to or
injure the Indemnified Party's reputation or future
business prospects,
(ii) the Indemnified Party reasonably believes that there exists or
could arise a conflict of interest
- 56 -
<PAGE>
which, under applicable principles of legal ethics, could
prohibit a single legal counsel from representing both the
Indemnifying Party and the Indemnifying Party in such
Proceeding, or
(iii) the Indemnifying Party has failed or is failing to prosecute
or defend vigorously such claim; and
(iv) the Indemnifying Party must obtain the prior written consent
of the Indemnified Party (which the Indemnified Party will not
unreasonably withhold) prior to entering into any settlement
of such Proceeding or ceasing to defend such Proceeding.
11.4 Exclusive Remedy. Except for Damages directly or indirectly
----------------
arising out of or relating to (i) fraud, gross negligence, willful misconduct or
bad faith of any of the Parties, or (ii) the representations and warranties set
forth in Sections 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.9, 4.22, 4.24 and 4.30, and
except for remedies that cannot be waived as a matter of law, if the Closing
occurs, this Article 11, and any limitations contained herein, shall be the
exclusive remedy for breach of the representations and warranties contained in
Articles IV and V hereof or in the corresponding certificates delivered pursuant
to Section 3.2 hereof; provided, however, that, with respect to Damages referred
-------- -------
to in clause (ii) hereof, the limitation set forth in the last sentence of
Section 11.2(a) shall be applicable.
11.5 Insurance Proceeds. In determining the amount of any Damages for
------------------
which an Indemnified Party is entitled to indemnification under this Agreement,
the gross amount thereof shall be reduced by any insurance proceeds actually
received by such Indemnified Party in respect of such Damages (or, in the case
of Buyer, by the Partners or the Partnership), net of any insurance premium or
increase in such premium that becomes due as a result of the Indemnified Party
filing the claim in respect of which such insurance proceeds were paid.
11.6 No Right of Contribution. After the Closing, neither the
------------------------
Partnership nor the Partners shall have any liability to indemnify either Buyer
or Sellers on account of a misrepresentation or the breach of any warranty or
the nonfulfillment of any covenant or agreement of any of the Kwik Wash
Entities; and Sellers shall have no right of contribution against the Partners
or the Partnership. In addition to any other remedy which may be available at
law or in equity, Buyer, the Partnership or any of the Partners shall be
entitled to specific performance and injunctive relief, without posting bond or
other security.
11.7 Characterization of Indemnity. The Parties intend that any amount
-----------------------------
paid pursuant to the provisions of this Article
- 57 -
<PAGE>
11 be treated as an adjustment of the Purchase Price prior to entering into any
settlement of such Proceeding or ceasing to defend such Proceeding.
ARTICLE 12
MISCELLANEOUS
12.1 Termination. This Agreement may be terminated:
-----------
(a) at any time prior to the Closing by written agreement of
the Buyer and Sellers,
(b) by the Buyer, at any time when any of the Kwik Wash
Entities are in breach of any of their obligations pursuant to the
Transaction Documents or if any representation or warranty of any of
the Kwik Wash Entities contained therein is false or misleading in any
material respect (provided that such condition is not the result of any
breach of any covenant, representation or warranty of the Buyer set
forth in this Agreement or in any document executed in connection with
this Agreement),
(c) by Sellers, at any time when the Buyer is in breach of any of
its obligations pursuant to the Transaction Documents or if any
representation or warranty of the Buyer contained therein is false or
misleading in any material respect (provided that such condition is not
the result of any breach of any covenant, representation or warranty of
any of the Kwik Wash Entities set forth in this Agreement or in any
document executed in connection with this Agreement), or
(d) by the Buyer or Sellers, at any time after January 15, 1997.
Any termination of this Agreement pursuant to any of clauses (b)
through (d) will be effected by written notice from the terminating party to
the Buyer (if Sellers are the terminating party) or the Sellers (if the Buyer
is the terminating party). Any termination of this Agreement pursuant to
clause (b), (c) or (d) will not terminate the liability of any Party hereto
for any willful failure of any Party to have performed any of its obligations
hereunder or for any knowing misrepresentation made by any Party of any
matter set forth in this Agreement or any Transaction Document which exists
at the time of such termination.
If this Agreement is terminated in accordance with clause (b) of
this Section 12.1, then Sellers will be, jointly and severally, responsible
for (and, in the case of the Buyer's Expenses, will reimburse Buyer for) all
Buyer's Expenses and Sellers' Expenses. If this Agreement is terminated in
accordance
- 58 -
<PAGE>
with clause (c) of this Section 13.1, then Buyer will be responsible for (and,
in the case of the Sellers' Expenses, will reimburse Sellers for) all Buyer's
Expenses and Sellers' Expenses.
12.2 Assignment. Neither this Agreement nor any of the rights or
----------
obligations hereunder may be assigned by Sellers without the prior written
consent of Buyer. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors
and assigns, and no other Person shall have any right, benefit or obligation
hereunder.
12.3 Notices; Transfer of Funds. Unless otherwise provided herein, any
--------------------------
notice, request, instruction or other document to be given hereunder by any
Party to the others shall be in writing and delivered in person or by courier
or by facsimile transmission or mailed by certified mail, postage prepaid,
return receipt requested (such mailed notice to be effective on the date of
such receipt is acknowledged), as follows:
If to Sellers: Richard Enthoven
5538 Falls Road
Dallas, Texas 75220
Telephone: (214) 373-1708
With a copy to: Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: Frederick J. Fowler, Esq.
Telephone: (214) 651-4565
Facsimile: (214) 651-4330
If to the
Partnership: Richard Enthoven
5538 Falls Road
Dallas, Texas 75220
Telephone: (214) 373-1708
With a copy to: Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: Frederick J. Fowler, Esq.
Telephone: (214) 651-4565
Facsimile: (214) 651-4330
If to Buyer: Coinmach Corporation
521 East Morehead, Suite 590
Charlotte, North Carolina 28202
Attention: Mr. Stephen R. Kerrigan
Telephone: (800) 438-5918
Facsimile: (704) 376-9407
- 59 -
<PAGE>
With copies to: Coinmach Corporation
55 Lumber Road
Roslyn, New York 11576
Attention: Robert M. Doyle
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Ronald S. Brody, Esq.
Telephone: (212) 278-1258
Facsimile: (212) 278-1733
or to such other place and with such other copies as either Party may
designate as to itself by written notice to the others.
All such notices, requests, instructions, documents and other
communications will (i) if delivered personally to the address as provided in
this Section 12.3, be deemed given upon delivery, (ii) if delivered by
facsimile transmission to the facsimile number as provided in this Section
12.3, be deemed given upon receipt, and (iii) if delivered by mail in the
manner described above to the address as provided in this Section 12.3, be
deemed given upon receipt (in each case regardless of whether such notice is
received by any other Person to whom a copy of such communication is to be
delivered pursuant to this Section 12.3).
Payments to be made to Sellers hereunder shall be made by wire
transfer of immediately available funds in accordance with the instructions
provided to Buyer pursuant to Section 2.2(b) or such other account or place
as Sellers may designate by written notice as provided herein. Payments to
be made to Buyer hereunder shall be made by wire transfer of immediately
available funds to such account or place as Buyer may designate by written
notice as provided herein.
12.4 Choice of Law; Service of Process. This Agreement shall be
---------------------------------
construed, interpreted and the rights of the Parties determined in accordance
with the laws of the State of New York, without giving effect to any choice of
law or conflict provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the laws of any jurisdiction other than the State
of New York to be applied. In furtherance of the foregoing, the internal law of
the State of New York will control the interpretation and construction of this
Agreement, even if under such jurisdiction's choice of law or conflict of law
analysis, the substantive law of some other jurisdiction would ordinarily apply.
Sellers irrevocably agree that any legal action or proceeding arising out of or
in connection with the Transaction Documents, or the transactions contemplated
thereby, shall be brought in the United States District Court for the Southern
District of New York. Any and all service of process and any other notice in any
such action, suit or proceeding shall
- 60 -
<PAGE>
be effective against any Party if given personally or by registered or certified
mail, return receipt requested, or by any other means of mail that requires a
signed receipt, postage prepaid, mailed to such Party as herein provided.
12.5 Entire Agreement; Amendments and Waivers. This Agreement,
----------------------------------------
together with all exhibits and schedules hereto (which form a part of this
Agreement and are incorporated into this Agreement for all purposes),
constitutes the entire agreement among the Parties pertaining to the subject
matter hereof and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the Parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the Party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided.
12.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.7 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or any other such instrument.
12.8 Headings. The headings of the Articles and Sections herein are
--------
inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
12.9 Singulars and Plurals. All references to the plural herein shall
---------------------
also mean the singular and to the singular shall also mean the plural, in each
case, as applicable.
12.10 Expenses. Except as otherwise provided herein, Sellers shall be
--------
responsible for Sellers' Expenses, and Buyer shall be responsible for Buyer's
Expenses.
12.11 Publicity. Unless required to do so by applicable law or legal
---------
process, neither Party shall issue any press release or make any public
statement regarding the Transaction Documents or the transactions
contemplated thereby without the prior written approval of the other Party
(which approval may not be unreasonably withheld or delayed). If either
Party is required by law or legal process to make any public statement
regarding the Transaction Documents or the transactions contemplated thereby,
such Party must first provide to the other Party the content of the proposed
public statement, the reasons
- 61 -
<PAGE>
that such disclosure is required by law or legal process, and the time and place
that the public statement will be made, in each case to the extent permitted by
law or legal process and to the extent reasonably practicable. Notwithstanding
the foregoing, it is acknowledged and agreed among the Parties that Buyer is a
reporting company under the Securities Exchange Act of 1934, as amended, and, as
such, is subject to the reporting requirements thereunder. Accordingly, no
agreement contained herein shall prevent Buyer from complying with any such
requirements in any manner Buyer deems appropriate. Notwithstanding anything in
this Section 12.11 to the contrary, the parties agree that no press release or
public statement (in each case, except as required by law or legal process)
regarding the Transaction Documents or the transactions contemplated thereby
shall contain any reference to the Ford family or name any of the Sellers.
12.12 Remedies. No failure to exercise, and no delay in exercising,
--------
any right, remedy, power or privilege under this Agreement by any Party hereto
will operate as a waiver of such right, remedy, power or privilege, nor will any
single or partial exercise of any right, remedy, power or privilege under this
Agreement preclude any other or further exercise of such right, remedy, power or
privilege or the exercise of any other right, remedy, power or privilege. The
rights, remedies, powers and privileges provided pursuant to this Agreement are
cumulative and not exhaustive of any other rights, remedies, powers and
privileges which may be provided by law.
12.13 Risk of Loss. Until the Closing, all risk of loss with respect
------------
to the Assets will remain with the Sellers. If prior to the Closing any material
Asset is damaged, destroyed or lost, then at its option the Buyer may waive the
failure of any condition set forth in Article 8 with respect to such damage,
destruction or loss and either
(a) reduce the Purchase Price by an amount equal to the diminution
in the fair market value (determined at the time of the Closing and net
of any insurance proceeds actually received by Buyer) of such material
Asset by reason of such damage, destruction or loss or
(b) elect to have the Sellers retain such damaged, destroyed or
lost material Asset and reduce the Purchase Price by the greater of the
fair market value or the net book value of such material Asset (in each
case, determined immediately prior to such damage, destruction or loss)
and less any insurance proceeds actually received by Buyer.
12.14 Confidential Information.
------------------------
(a) The Parties acknowledge that the transactions contemplated by
this Agreement are of a confidential nature and, subject to the agreements
contained in Section 12.10 hereof, each Party agrees to keep the existence of
the Transaction Documents
- 62 -
<PAGE>
and all of the transactions contemplated thereby strictly confidential, and each
Party agrees that it will not, without the prior written consent of the other
Party, make any public comment, statement, or communication or otherwise
disclose or permit any disclosure with respect to, or regarding the transactions
contemplated hereby, including but not limited to the existence of the
Transaction Documents, except to their respective Representatives, or as
required by applicable law or legal process, until such time as the Parties make
a public announcement as provided in Section 12.10. Neither the Buyer nor the
Kwik Wash Entities shall at any time make any public disclosure of the specific
terms, conditions or other aspects of the Transaction Documents, except as
required by applicable law or legal process.
(b) Each Party further acknowledges that, in connection with the
negotiation of the Transaction Documents and the preparation for the
consummation of the transactions contemplated thereby, it will have access to
confidential information relating to the other Party. The Parties agree that
they will treat as confidential, will not duplicate (except to their
respective Representatives in connection with the transactions contemplated
by the Transaction Documents) or use, and will maintain the confidentiality
of (and will use its best efforts to cause and be responsible for the
Representatives of such Party to maintain the confidentiality of), any
written, oral, or other information obtained from the other Party in
connection with the Transaction Documents or the transactions contemplated
thereby, unless (a) such information is already known to such Party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such Party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated by the Transaction Documents, or (c) the furnishing or use of
such information is required by applicable law or legal process. In the
event of the termination of this Agreement for any reason whatsoever, each
Party shall destroy or return to the other all documents, work papers and
other material (including all copies thereof) obtained in connection with the
transactions contemplated by the Transaction Documents and will keep
confidential (and will so instruct and be responsible for its Representatives
and others who have had access to confidential information) and will not use
any such information, unless such information is now, or is hereafter,
disclosed through no act or omission of such Party, in any manner making it
available to the general public.
12.15 Litigation Costs. Except as otherwise provided in Section 2.3(d)
----------------
hereof, if any legal action or any arbitration or other proceeding is brought
for the enforcement of any of the Transaction Documents, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
of the provisions of this Agreement, the successful or
- 63 -
<PAGE>
prevailing Party or Parties shall be entitled to recover reasonable attorneys'
fees and other costs incurred in that action, arbitration or proceeding, in
addition to any other relief to which it may be entitled.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY
LEFT BLANK. SIGNATURE PAGES FOLLOW.]
- 64 -
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement, or
have caused this Agreement to be duly executed on their behalf by their
respective officers thereunto duly authorized, as of the day and year first
above written.
COINMACH CORPORATION
By: /s/ Stephen R. Kerrigan
________________________
Name: Stephen R. Kerrigan
Title: Chief Executive Officer
KWIK WASH LAUNDRIES, L.P.
By: /s/ Richard Enthoven
______________________
Name: Richard Enthoven
Title: President of KWL, Inc.,
the General Partner
KWL, INC.
By: /s/ Richard Enthoven
______________________
Name: Richard Enthoven
Title: President
KWIK WASH LAUNDRIES, INC.
By: /s/ Dan DeGeus
______________________
Name: Dan DeGeus
Title: President
/s/ Tamara Lynn Ford
_________________________
Tamara Lynn Ford
/s/ Robert Kyle Ford
_________________________
Robert Kyle Ford
1
<PAGE>
/s/ Traci Lea Ford
_________________________
Traci Lea Ford
/s/ Tucker F. Enthoven
_________________________
Tucker F. Enthoven
/s/ Richard F. Enthoven
_________________________
Richard F. Enthoven
/s/ Richard Franklin Ford, Jr.
_____________________________
Richard Franklin Ford, Jr.,
Trustee U/D/T February 4, 1994
2
<PAGE>
SCHEDULE A
List of Sellers
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr.,
Trustee U/D/T February 4, 1994
<PAGE>
EXHIBIT A
PREMIUM FINANCE AGREEMENT [_] PERSONAL
[_] COMMERCIAL
[LOGO OF AFCO APPEARS HERE] (CHECK APPROPRIATE BOX)
12160 ABRAMS ROAD, STE 301-L.B.51
DALLAS, TEXAS 75243 TEL 214-669-8870
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
AGENT PRODUCER CODE NO. INSURED
TOTAL PREMIUMS (NAME AND PLACE OF BUSINESS) 37-42-63291-7 (NAME AND RESIDENCE OR BUSINESS ADDRESS)
A
----------------- KWIK WASH LAUNDRIES L.P.
$540,986.85 MARSH & MCLENNAN OF TEXAS INC Attn: KIMBERLY KLOSACK
- ------------------- 2200 ROSS AVENUE #3300 4240 BRONZE WAY
B DOWN PAYMENT DALLAS, TX DALLAS, TX
$46,923.60
- ------------------- ZIP CODE 75201 2149799900 ZIP CODE 75237
----------- ----------
AMOUNT -----------------------------------------------------------------------------------------------
FINANCED PAYMENT SCHEDULE
(A Minus B) -----------------------------------------------------------------------------------------------
C NUMBER OF PAYMENTS AMOUNT OF PAYMENTS WHEN PAYMENTS ARE DUE
-----------------------------------------------------------------------------------------------
FIRST INSTALLMENT DUE INSTALLMENT DUE
$494,063,25 11 MOS $ 46,423.61 09/30/96 30th
- -------------------------------------------------------------------------------------------------------------------
SCHEDULE OF POLICIES
FINANCE -----------------------------------------------------------------------------------------------
D CHARGE EFFECTIVE
POLICY PREFIX DATE OF MONTHS
AND NUMBER POLICY/ NAME OF INSURANCE COMPANY AND NAME TYPE COVERED PREMIUM
$16,596.46 ANNUAL AND ADDRESS OF GENERAL OR POLICY OF AT
INSTALLMENT ISSUING AGENT COVER PREM.
- --------------------------------------------------------------------------------------------------------------------
D96CM047 08/31/96 ACCEPTANCE INS CO CGL 12* $344,018.00
TOTAL MACLEAN ODDY & ASSOC TaxRF 17,028,89
E OF PAYMENTS 1445 ROSS AV #3900 LB200
(C plus D) DALLAS, TX 75202
$510,659.71
- ---------------- 08/31/96 RELIANCE INSURANCE COMPANY EEI 12* 40,345.00
ANNUAL CRUMP INS SERVICES OF TEXAS FeeN 500.00
PERCENTAGE 7557 RAMBLER RD SUITE 300 L TaxRF 2,021.83
F RATE DALLAS, TX 75231
6.65 % POLICY DETAIL CONTINUED
- --------------------------------------------------------------------------------------------------------------------
806A TOTAL PREMIUMS MUST AGREE WITH BLOCK "A" ABOVE TOTAL $
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY AGREEMENT
1. DEFINITIONS: The above named Insured ("the insured") is the debtor. Afco
Credit Corporation ("Afco") is the lender to whom the debt is owed. Singular
words shall mean plural and vice versa as may be required in order to give the
agreement meaning, "insurance company or company", "insurance policy or policy"
and "premium" refer to those items listed under "Schedule of Policies".
2. PROMISE OF REPAYMENT: The Insured requests Afco to pay the premiums on the
policies shown above. The Insured promises to pay to Afco at its office the
amount stated in Block E above, according to the Payment Schedule shown above
subject to the rest of the terms of this Contract.
3. SECURITY INTEREST: The insured assigns to Afco as security for the total
amount payable in this Agreement any and all unearned premiums and dividends
which may become payable under the Insurance policies and loss payments which
reduce the unearned premiums, subject to any mortgagee or loss payee Interests.
The Insured gives to Afco a security interest in all items mentioned in this
paragraph
4. DEFAULT CHARGES: If the Insured is more than 10 days (5 days for Louisiana
commercial Insureds) late in making an installment payment to Afco then the
insured will pay to Afco in addition to the installment, a default charge of 5%
of the unpaid balance of the delinquent installment. (Louisiana consumer
Insureds will not be charged more than $15.)
- --------------------------------------------------------------------------------
THE INSURED AGREES TO THE
PROVISIONS ABOVE AND ON THE REVERSE SIDE
----------------------------------------
/s/ Robert E. Bailey
---------------------------------------------
Date 9/18/96 KWL, Inc. General Partner
----------------- ---------------------------------------------
Robert E. Bailey
Vice President & General Counsel
PRODUCER'S REPRESENTATIONS
--------------------------
The undersigned warrants and agrees:
(1) The Insured has received a copy of this agreement, and the Required Federal
Truth-in-Lending Disclosures for Personal Lines Insurance. If applicable, (2)
the policies are in full force and effect and the Information in the schedule of
policies and the premiums are correct, (3) the insured has authorized this
transaction and recognizes the security interest assigned herein, (4) to hold in
trust for Afco any payments made or credited to the Insured through or to the
undersigned, directly, indirectly, actually or constructively by any of the
Insurance companies and to pay the monies to Afco upon demand to satisfy the
then outstanding Indebtedness of the Insured and that any lien the undersigned
now has or hereafter may acquire on any return premium arising out of the above
listed Insurance policies is subordinated to Afco's lien or security interest
therein, (5) there are no exceptions to the policies financed other than those
indicated and the policies comply with Afco's eligibility requirements; (6) No
Audit or Reporting Form Policies, policies subject to Retrospective Rating or to
minimum earned premiums, are included except as
indicated and that the Deposit or Provisional Premiums
are not less than anticipated premiums to be earned Indicate Policy & Profix
for the full term of the policies, if policy is Member of exception
subject to minimum earned premium, it is $_________,*: ------------------------
(7) The policies can be cancelled by the Insured of the Subject
company on 10 days notice and the unearned premiums will To Audit
be computed on the standard short rate of pro rata table
except as indicated.
(8) The undersigned represents that a proceeding in
bankruptcy, receivership or insolvency has not been
instituted by or against the named insured or if the
named insured is the subject of such a proceeding, it is
noted on the premium finance agreement in the space in
which the insured's name and address is placed.
Date______________________ X _____________________________________
Signature of agent or broker
Page 1 of 3
<PAGE>
PREMIUM FINANCE AGREEMENT [_] PERSONAL
[_] COMMERCIAL
[LOGO OF AFCO APPEARS HERE] (CHECK APPROPRIATE BOX)
12160 ABRAMS ROAD, STE 301-L.B.51
DALLAS, TEXAS 75243 TEL 214-669-8870
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
AGENT PRODUCER CODE NO. INSURED
TOTAL PREMIUMS (NAME AND PLACE OF BUSINESS) 37-42-63291-7 (NAME AND RESIDENCE OR BUSINESS ADDRESS)
A
----------------- KWIK WASH LAUNDRIES L.P.
$See Page 1 MARSH & MCLENNAN OF TEXAS INC Attn: KIMBERLY KLOSACK
- ------------------- 2200 ROSS AVENUE #3300 4240 BRONZE WAY
B DOWN PAYMENT DALLAS, TX DALLAS, TX
- ------------------- ZIP CODE 75201 2149799900 ZIP CODE 75237
----------- ----------
AMOUNT -----------------------------------------------------------------------------------------------
FINANCED PAYMENT SCHEDULE
(A Minus B) -----------------------------------------------------------------------------------------------
C NUMBER OF PAYMENTS AMOUNT OF PAYMENTS WHEN PAYMENTS ARE DUE
$ -----------------------------------------------------------------------------------------------
FIRST INSTALLMENT DUE INSTALLMENT DUE
$ DATE
- -------------------------------------------------------------------------------------------------------------------
SCHEDULE OF POLICIES
FINANCE -----------------------------------------------------------------------------------------------
D CHARGE EFFECTIVE
POLICY PREFIX DATE OF MONTHS
$ AND NUMBER POLICY/ NAME OF INSURANCE COMPANY AND NAME TYPE COVERED PREMIUM
ANNUAL AND ADDRESS OF GENERAL OR POLICY OF AT
INSTALLMENT ISSUING AGENT COVER PREM.
- --------------------------------------------------------------------------------------------------------------------
08/31/96 LEXINGTON INS CO CAS 12 $ 28,750,00
TOTAL TaxRF 1,423,13
E OF PAYMENTS BE932206 08/31/96 NATIONAL UNION FIRE INS CO UMB 12 97,500.00
(C plus D)
$
- ---------------- 81390909 08/31/96 FEDERAL INS CO CRIM 12 9,400.00
ANNUAL
PERCENTAGE
F RATE
%
- --------------------------------------------------------------------------------------------------------------------
TOTAL PREMIUMS MUST AGREE WITH BLOCK "A" ABOVE TOTAL $540,986.85
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
SECURITY AGREEMENT
1. DEFINITIONS: The above named Insured ("the insured") is the debtor. Afco
Credit Corporation ("Afco") is the lender to whom the debt is owed. Singular
words shall mean plural and vice versa as may be required in order to give the
agreement meaning, "insurance company or company", "insurance policy or policy"
and "premium" refer to those items listed under "Schedule of Policies".
2. PROMISE OF REPAYMENT: The Insured requests Afco to pay the premiums on the
policies shown above. The Insured promises to pay to Afco at its office the
amount stated in Block E above, according to the Payment Schedule shown above
subject to the rest of the terms of this Contract.
3. SECURITY INTEREST: The insured assigns to Afco as security for the total
amount payable in this Agreement any and all unearned premiums and dividends
which may become payable under the Insurance policies and loss payments which
reduce the unearned premiums, subject to any mortgagee or loss payee Interests.
The Insured gives to Afco a security interest in all items mentioned in this
paragraph
4. DEFAULT CHARGES: If the Insured is more than 10 days (5 days for Louisiana
commercial Insureds) late in making an installment payment to Afco then the
insured will pay to Afco in addition to the installment, a default charge of 5%
of the unpaid balance of the delinquent installment. (Louisiana consumer
Insureds will not be charged more than $15.)
- --------------------------------------------------------------------------------
THE INSURED AGREES TO THE
PROVISIONS ABOVE AND ON THE REVERSE SIDE
----------------------------------------
/s/ Robert E. Bailey
---------------------------------------------
Date 9/18/96 KWL, Inc. General Partner
----------------- ---------------------------------------------
Robert E. Bailey
Vice President & General Counsel
PRODUCER'S REPRESENTATIONS
--------------------------
The undersigned warrants and agrees:
(1) The Insured has received a copy of this agreement, and the Required Federal
Truth-in-Lending Disclosures for Personal Lines Insurance. If applicable, (2)
the policies are in full force and effect and the Information in the schedule of
policies and the premiums are correct, (3) the insured has authorized this
transaction and recognizes the security interest assigned herein, (4) to hold in
trust for Afco any payments made or credited to the Insured through or to the
undersigned, directly, indirectly, actually or constructively by any of the
Insurance companies and to pay the monies to Afco upon demand to satisfy the
then outstanding Indebtedness of the Insured and that any lien the undersigned
now has or hereafter may acquire on any return premium arising out of the above
listed Insurance policies is subordinated to Afco's lien or security interest
therein, (5) there are no exceptions to the policies financed other than those
indicated and the policies comply with Afco's eligibility requirements; (6) No
Audit or Reporting Form Policies, policies subject to Retrospective Rating or to
minimum earned premiums, are included except as
indicated and that the Deposit or Provisional Premiums
are not less than anticipated premiums to be earned
for the full term of the policies, if policy is Indicate Policy & Profix
subject to minimum earned premium, it is $_________,*: Member of exception
(7) The policies can be cancelled by the Insured of the ------------------------
company on 10 days notice and the unearned premiums will Subject
be computed on the standard short rate of pro rata table To Audit
except as indicated.
(8) The undersigned represents that a proceeding in
bankruptcy, receivership or insolvency has not been
instituted by or against the named insured or if the
named insured is the subject of such a proceeding, it is
noted on the premium finance agreement in the space in
which the insured's name and address is placed.
Date______________________ X _____________________________________
Signature of agent or broker
Page 2 of 3
<PAGE>
Page 3 of 3 /s/ Robert E. Bailey
9/18/96
KWL, Inc. General Partner
Robert E. Bailey
REMAINING PROVISIONS OF SECURITY AGREEMENT Vice President & General Counsel
- ------------------------------------------
5. FINANCE CHARGE: The finance charge shown in Box D begins to accrue as of the
earliest policy effective date.
6. THIS AGREEMENT BECOMES A CONTRACT: This Agreement becomes a binding contract
when Afco mails a written acceptance to the insured.
7. WARRANTY OF ACCURACY: The insured warrants to Afco that the insurance
policies listed in the above schedule have been issued to the insured and
are in full force and effect and that the insured has not assigned any
interest in the policies except for the interest of mortgagees and loss
payees.
8. REPRESENTATION OF SOLVENCY: The insured represents that the insured is not
insolvent or presently the subject of any insolvency preceeding.
9. CANCELLATION: Afco may cancel the insurance policies and the unpaid balance
due to Afco shall be immediately payable by the insured if any of the
following occur:
(a) The insured does not pay any installment according to
the terms of this Agreement.
(b) The insured does not comply with any of the terms of
this Agreement.
(c) The insured or the insurer voluntarily or involuntarily
becomes the subject of a bankruptcy, receivership or
any other kind of insolvency proceeding.
(d) If the insured is a business and stops doing business
or ceases to be qualified to do business.
Afco at its option may enforce payment of this debt without recourse to the
security given to Afco.
10. POWER OF ATTORNEY: The insured irrevocably appoints Afco its Attorney-in-
Fact with full authority to cancel the insurance policies, receive all sums
assigned to Afco or in which it has granted Afco a security interest and
Afco may execute and deliver on the insured's behalf all documents,
instruments of payment, forms and notices of any kind relating to the
insurance policies in furtherance of this Agreement.
11. MONEY RECEIVED AFTER NOTICE OF CANCELLATION: Any payments made to Afco after
Afco's Notice of Cancellation of the insurance policies has been mailed may
be credited to the insured's account without affecting the acceleration of
this Agreement and without any liability or obligation on Afco's part to
request the reinstatement of the cancelled insurance policies. Any money
Afco receives from an insurance company shall be credited to the amount due
Afco with any surplus being paid over to whomever is entitled to the money.
No refund of less than $1.00 shall be made. If there is a balance due after
Afco receives the unearned premiums, dividends or loss payments from the
insurance company then the insured will pay the balance to Afco with
interest at the rate shown in this contract.
12. REFUND CREDIT: The insured will receive a refund credit of the finance
charge if the account is voluntarily prepaid in full prior to the last
installment due date. The refund shall be computed according to the Rule of
78s. However, for Texas insureds if prepayment in full occurs before the
first installment due date, Afco may only keep a finance charge computed
according to the following formula: Number of days from inception of the
policy to prepayment in full multiplied by one month's interest computed
according to the Rule of 78s divided by 30. If the refund credit is less
than $1 no refund shall be made. Louisiana insureds are subject to a
nonrefundable charge of $10.
13. INSURANCE AGENT OR BROKER: The insurance agent or broker named on this
Agreement is the Insured's agent, not Afco's and Afco is not legally bound
by anything the agent or broker represents to the insured, orally or in
writing.
14. SPECIAL INSURANCE POLICIES: If the insurance policy issued is auditable or
is a reporting form policy or subject to retrospective rating, then the
insured promises to pay the insurance company the earned premium computed in
accordance with the policy provisions which is in excess of the amount of
premium advanced by Afco which the Insurance company retains.
15. CANCELLATION CHARGES: (Louisiana insureds only) if Afco cancels a policy,
then the insured will pay to Afco a cancellation charge of $25.
16. ATTORNEY FEES AND COURT COSTS: Louisiana insureds agree to pay 25% of the
amount due as attorney fees. Texas insureds agree that if, for collection,
this Agreement is placed in the hands of an attorney who is not a salaried
employee of Afco, then the insured agrees to pay to Afco all court costs
actually incurred and reasonable attorney fees assessed by a court.
17. SUCCESSORS AND ASSIGNS: All legal rights given to Afco shall benefit Afco's
successors and assigns. The insured agrees not to assign the policy without
Afco's written consent except for the interest of mortgagees and loss
payees.
18. ADDITIONAL PREMIUMS: (a) If an additional premium becomes due on the policy,
the insured gives Afco the right to pay the
additional premium and to amend this contract. For
Texas insureds, the additional premium may be added
to this Agreement only if a Memorandum of Agreement
between the agent and insured is given to the
insured before the first installment due date of
the amended Agreement.
(b) The money paid by Afco is only for the premium as
determined at the time the insurance policy is
issued, Afco's payment shall not be applied by the
insurance company to pay for any additional
premiums owed by the insured as a result of any
type of misclassification of the risk. If
additional premiums are not paid by Afco, the
insured agrees to pay the company any additional
premiums which became due for any reason. Afco may
assign to the company any rights it has against the
insured for premiums due the company in excess of
the premiums returned to Afco.
19. AGENT'S WARRANTIES: To convince Afco to enter this Agreement and accept the
security underlying this Agreement, the person executing this Agreement, if
not the Insured, warrants severally and as the duly authorized agent of the
Insured that he is the duly authorized agent of the Insured appointed
specifically to enter into this transaction on the Insured's behalf; that he
can perform any act the insured could or should perform with respect to
this transaction; that he will hold in trust for Afco any payments made or
credited to the Insured through the undersigned or to the undersigned,
directly, indirectly, actually or constructively, by any of the insurance
companies and that he will pay the monies to Afco upon demand to satisfy the
then outstanding indebtedness of the insured.
<PAGE>
CLAIM SERVICE AGREEMENT
AGREEMENT NO. 10864
PROGRAM NO. 10722
THIS AGREEMENT, made as of the thirty-first day of August, 1996,
between CRAWFORD & COMPANY, a corporation of the State of Georgia ("Service
Company") and KWIK WASH LAUNDRIES, L.P., a limited partnership of the State of
Nevada ("Client").
W I T N E S S E T H:
-------------------
WHEREAS, Service Company is engaged in the business of providing
certain services with respect to the investigation and payment of property and
casualty claims; and
WHEREAS, Client desires to retain Service Company for the provision of
its services for Client's claims for its self-insured exposures as set forth on
Exhibit A, attached hereto and made a part hereof ("Exposures") up to its
- ---------
self-insurance retention(s) and Service Company is willing to provide such
services, on the terms and conditions set forth below;
NOW THEREFORE, in consideration of the premises hereof, the mutual
promises and agreements contained herein, and the payments to be made to Service
Company for services rendered to Client hereunder, the parties hereto, intending
to be legally bound, hereby agree as follows:
ARTICLE I
---------
TERM
- ----
Service Company agrees to provide all services set forth herein to Client
in connection with its self-insured claims Exposures occurring in the States of
Louisiana, Mississippi, Oklahoma and Texas during the period commencing August
31, 1996, and ending through August 30, 1997.
ARTICLE II
----------
PRICE
- -----
See Exhibit B, attached hereto and made a part hereof.
---------
ARTICLE III
-----------
SERVICE COMPANY
- ---------------
Service Company agrees as follows:
1. To provide Client with those services as set forth in Paragraph 2 below
(the "Basic Services") with respect to any claim referred to Service Company
that is made under any Exposures which involves an actual or alleged loss
occurring during the term of this Agreement for the monetary
<PAGE>
considerations set forth in Article II, except that Allocated Loss Adjustment
Expense, as defined in Article IV below, will be paid by Client in addition to
the monetary considerations set forth in Article II.
2. To consider that the Basic Services to be rendered with respect to
any claims described in this Article III, Paragraph 1 above ("Claims") shall be
the following:
A. To establish a file with respect to each Claim.
B. To investigate all Claims and to recommend the amount of loss
reserve to be established with respect to each such Claim.
C. To provide each Claim file with a written chronology of all
actions taken with respect to the underlying Claim.
D. To furnish all claim forms necessary for proper claims
administration.
E. To adjust, settle or resist all Claims within the discretionary
settlement authority limit of Service Company as agreed upon by Service
Company and Client, in writing, from time to time (the "Authority Limit").
F. To adjust, settle or resist all Claims in excess of the Authority
Limit with the express prior approval of Client.
G. To supervise all litigation or other proceedings involving any
Claim and, where permitted, to attend any judicial or administrative
hearing involving any Claim.
H. To retain and then destroy files for each Claim in accordance
with the File Retention and Destruction Policy set forth in Exhibit C,
----------
attached hereto and made a part hereof.
I. To monitor all treatment programs recommended to a Claimant by
any care provider.
J. To furnish to Client and/or its designees on a monthly basis,
a "Loss Run" and a "Loss Fund Activity Report." The term "Loss Run" means a
computer generated listing of Claims that have been posted to Service
Company's Statistical Insurance Support Data ("SISDAT") System. The term
"Loss Fund Activity Report" means a computer generated listing of
accounting activity in the Loss Fund Account, as defined in Paragraph 8
below, during the preceding month that has posted to Service Company's
SISDAT System. These computer generated listings will be provided to Client
and/or its designees in hard copy or microfiche. A maximum of five (5)
copies of any single listing, either hard copy, microfiche or any
combination thereof, will be provided by Service Company for each period.
Service Company reserves the unilateral right to amend or alter the
substance and form of the listing to be provided to Client and/or its
designees hereunder if Service Company hereafter amends or alters the
substance or form of such listings for its customers generally.
-2-
<PAGE>
3. To Client's right to assume the control and handling of any Claim at
any time, and Service Company agrees to deliver promptly any Claim file to
Client which it may request, but without any off-set or deduction from any of
the fees or charges paid or payable by Client to Service Company under Article V
below. The parties agree that at all times prior to and after the cancellation
of this Agreement all Claim files are owned by and are the property of Client.
Claim files are subject to review by Client and its employees and authorized
agents during Service Company's regular business hours, with reasonable prior
notice.
4. To exercise reasonable efforts to manage the services provided
hereunder in such a way and in such manner as to ensure that every adjuster,
claims investigator, appraiser and/or employee used by Service Company or
subcontracted by Service Company will adjust and/or investigate every alleged
Claim or matter covered by this Agreement in accordance with this Agreement.
5. To provide to Client, upon written request, Certificates of Insurance
evidencing adequate General Liability Insurance, Automobile Liability Insurance,
Workers' Compensation Insurance, Fidelity Coverage (Bond) and Errors and
Omissions Insurance (Professional Liability Coverage).
6. To indemnify, defend and hold Client and Client's directors, officers,
attorneys, employees, agents and other representatives, wholly harmless from and
against any and all damage, loss, costs and expenses whatsoever (including,
without limitation, attorneys' fees and litigation expenses) incurred by Client
or by any of Client's directors, officers, attorneys, employees, agents or other
representatives, by reason of any negligent, grossly negligent or willful act or
omission of Service Company or of Service Company's directors, officers,
attorneys, employees, agents or other representatives, taken or omitted to be
taken pursuant to this Agreement; provided, however, that Service Company shall
have no obligation to indemnify anyone pursuant hereto with respect to (i) any
act or omission of Service Company or any of Service Company's directors,
officers, attorneys, employees, agents or other representatives taken or omitted
to be taken at the direction of Client or any of Client's directors, officers,
attorneys, employees, agents or other representatives, (ii) Service Company
being named in litigation as the insurer of record, (iii) Service Company or
Service Company's directors', officers', attorneys', employees', agents' or
other representatives' failure to settle a Claim that could have been settled
within Service Company's Authority Limit (so long as such failure to settle does
not result from a negligent, grossly negligent or willful act, error or omission
by Service Company or by any of Service Company's directors, officers,
attorneys, employees, agents or other representatives), or (iv) Service Company
or Service Company's directors', officers', attorneys', employees', agents' or
other representatives' failure to pay any Claim or Allocated Loss Adjustment
Expense on a timely basis due to Client's or Client's directors', officers',
attorneys' employees', agents' or other representatives' failure to comply with
Article V, Paragraphs 5 and 6 hereunder. In the event Client or any of its
directors, officers, attorneys, employees, agents or other representatives, is
named as a defendant in any legal action or proceeding in which a Claim
indemnified hereunder is asserted, Service Company will assume, at Service
Company's expense, the defense of such action on behalf of Client and its
- 3 -
<PAGE>
directors, officers, attorneys, employees, agents and other representatives, as
the case may be. Service Company has sole discretion to select the attorneys who
will defend any such action, provided, however, that Service Company shall
exercise such discretion reasonably. This indemnity shall survive termination of
this Agreement.
7. To exercise reasonable care in the selection of any Service Company,
Adjusting Company, Adjuster, Claims Investigator or Appraiser it subcontracts
its responsibilities hereunder, to ascertain that such subcontractors hold
proper licenses for the work to be performed, and to warrant that it and its
Adjusters, Claims Investigators and Appraisers hold proper licenses for the work
to be performed and are resident in those states requiring residency, and in
which it renders services hereunder.
8. To issue its checks from its bank account (the "Loss Fund Account") to
be funded by Client as set forth in Exhibit D, attached hereto and made a part
---------
hereof, for the payment by Service Company of Claims and Allocated Loss
Adjustment Expense associated with Claims for which Service Company is providing
Claims Adjusting Services hereunder, and for deposit of recovery amounts,
including, without limitation, subrogation, salvage and adjustment
reimbursements from Claim and/or Allocated Loss Adjustment Expense amounts
previously paid from such Loss Fund Account ("Recoveries").
9. To report directly to Client and to have no responsibility for
reporting to or placing any specific excess insurer(s) or annual aggregate
excess insurer(s) on notice of any Claims(s) that is/are or may be required to
be reported or notice given to such excess insurer(s) under the terms and
conditions of any such excess insurance policies available to the Client.
Service Company will continue to handle Claims once Client's self-insurance
retention, either specific or annual aggregate, has been exceeded if mutually
agreed to by Client and excess insurer(s), if there is no controversy as to
coverage, liability, and damages between Client and its excess insurer(s). Such
further Claims handling will be provided by Service Company at time and expense
based upon its then prevailing hourly rate and expense method of billing with
the excess insurer(s) being responsible for supervision of Service Company and
payment of Service Company's time and expense service bills.
ARTICLE IV
----------
ALLOCATED LOSS ADJUSTMENT EXPENSE
- ---------------------------------
1. The term "Allocated Loss Adjustment Expense" shall mean such of the
following items of expense incurred or authorized by Service Company as may be
reasonable and necessary in connection with its provision of the Basic Services:
A. Medical examinations of claimants, including the reasonable and
necessary transportation expenses of claimants.
B. Reports from attending or examining physicians.
C. Attorneys' fees and disbursements.
D. Court reporter services and transcripts.
E. Stenographic services and transcripts.
F. Witness attendance fees.
- 4 -
<PAGE>
G. Court costs.
H. Appeal bonds.
I Printing costs related to trials and appeals.
J. Testimony, opinions, appraisals, reports, surveys and analyses of
professionals and experts.
K. Automobile and Property appraisals.
L. Trial and hearing attendance fees.
M. Reports from government agencies or branches.
N. Credit bureau reports.
O. Private investigators.
P. Photographs.
Q. Medical or vocational rehabilitation.
R. Medical cost containment services, i.e. utilization review,
pre-admission authorization, hospital bill audit, provider bill audit
and medical case management incurred at the request of Client.
S. Extraordinary Claim investigation and/or travel expense incurred at
the request of Client.
T. Any similar service related to the investigation and defense of a
particular Claim, or the protection of and collection of the
subrogation rights of Client, for which Client shall have given prior
approval.
ARTICLE V
---------
CLIENT
- ------
Client agrees as follows:
1. To pay to Service Company the fees prescribed in Article II. If Client
fails to pay Service Company the fees prescribed in Article II and/or in
accordance with the time frames set forth therein, Service Company will notify
Client and if Client does not cure such failure within ten (10) days of such
notice, Service Company may terminate this Agreement immediately,
notwithstanding the sixty (60) days prior written notice set forth in Article
VI. In the event of such immediate Agreement termination, the termination option
as set forth in Article VI, Paragraph 1(B), shall apply.
2. To pay to Service Company at its then prevailing hourly rate and
expense method of billing for all claims and/or losses previously handled or
attempted to be handled by any person, firm or corporation or Client before
being assigned to Service Company.
3. To pay all Allocated Loss Adjustment Expense, as defined in Article
IV, in addition to the Claim service fee to be paid to Service Company as
prescribed in Article II.
4. To indemnify, defend and hold Service Company and Service Company's
directors, officers, attorneys, employees, agents and other representatives
wholly harmless from and against any and all damage, loss, costs and expenses
whatsoever (including, without limitation, attorneys' fees and litigation
expenses) incurred by Service Company or by any of Service Company's directors,
officers, attorneys, employees, agents or
- 5 -
<PAGE>
other representatives, by reason of any negligent, grossly negligent or willful
act or omission of Client or of Client's directors, officers, attorneys,
employees, agents or other representatives, taken or omitted to be taken
pursuant to this Agreement, including, without limitation, any such damage,
loss, cost or expense incurred by reason of (i) any act or omission of Service
Company or of any of Service Company's directors, officers, attorneys,
employees, agents or other representatives taken or omitted to be taken at the
direction of Client or any of Client's directors, officers, attorneys,
employees, agents or other representatives, (ii) Service Company being named in
litigation as the insurer of record, (iii) Service Company or Service Company's
directors', officers', attorneys', employees', agents' or other representatives'
failure to settle a claim that could have been settled within Service Company's
Authority Limit (so long as such failure to settle does not result from a
negligent, grossly negligent, or willful act, error or omission by Service
Company or by any of Service Company's directors, officers, attorneys,
employees, agents or other representatives), or (iv) Service Company or Service
Company's directors', officers', attorneys', employees', agents' or other
representatives' failure to pay any Claim or Allocated Loss Adjustment Expense
on a timely basis due to Client or Client's directors', officers', attorneys',
employees', agents' or other representatives' failure to comply with Article V,
Paragraphs 5 and 6 hereunder. In the event Service Company or any of its
directors, officers, attorneys, employees, agents or other representatives, is
named as a defendant in, or is otherwise obligated to defend, any action
asserting any Claim indemnified hereunder, Client will assume, at Client's
expense, the defense of such actions on behalf of Service Company and its
directors, officers, attorneys, employees, agents or other representatives, as
the case may be. Client has sole discretion to select the attorneys who will
defend any such action, provided, however, that Client shall exercise such
discretion reasonably. This indemnity shall survive termination of this
Agreement.
5. To provide sufficient funds to the Loss Fund Account to enable Service
Company at all times to pay Claims and Allocated Loss Adjustment Expenses in
accordance with the terms and conditions of this Agreement, including the terms
and conditions contained in Exhibit D, attached hereto and made a part hereof.
---------
6. To authorize and hereby does authorize Service Company to withdraw
from the Loss Fund Account such funds as may be necessary to enable Service
Company to pay Claims, provided such payments do not exceed the Authority Limit
of Service Company as defined in Article III, Paragraph 2(E). Service Company
also may withdraw from the Loss Fund Account such funds as may be necessary to
enable Service Company to pay all Allocated Loss Adjustment Expenses. Service
Company may withdraw funds from the Loss Fund Account to pay Claims in excess of
Service Company's Authority Limit only with the express authorization of Client.
Service Company is also authorized and directed to deposit Recoveries into the
Loss Fund Account.
- 6 -
<PAGE>
ARTICLE VI
----------
TERMINATION
- -----------
1. This Agreement covers the period as stated in Article I. Any
continuation or renewal of this Agreement shall be the subject of further
negotiation between Client and Service Company. If this Agreement is terminated
or not renewed, Client shall exercise one of the following options, unless this
Agreement is terminated in accordance with Paragraphs 3 or 4 of this Article VI:
A. Client may require Service Company to conclude the handling of
all Claims occurring during the term of this Agreement whether reported
before or after the effective date of termination of this Agreement
subject, however, to the terms, conditions and limitations of this
Agreement.
B Client may require Service Company to return all open and/or
closed Claim files. Such return of open and/or closed Claim files shall not
result in any expense or reduction in per claimant fees for all flat rate
claims referred to Service Company prior to the effective date of
termination, or time and expense fees incurred on time and expense Claims
prior to the effective date of termination. The costs and expenses incurred
by Service Company in returning such files will be billed, with
documentation showing such costs, to Client by Service Company. Such
billing will be paid by Client to Service Company within thirty (30) days
of billing.
2. This Agreement may be terminated by either Client or Service Company
with or without cause and for any reason whatsoever upon Sixty (60) days prior
written notice.
3. Notwithstanding the provisions of Paragraph 2 of this Article VI, this
Agreement may be terminated immediately by Service Company if Client fails to
fulfill any or all of its financial obligations to Service Company in accordance
with the terms and conditions of this Agreement, in which event the termination
option in this Article VI, Paragraph 1(B) shall apply.
4. Notwithstanding the provisions of Paragraphs 2 and 3 of this Article
VI, this Agreement may be terminated immediately by Service Company or Client if
the other party (i) is rendered or becomes insolvent, (ii) is unable to pay
debts as they come due, (iii) is adjudicated a bankrupt, or files, or becomes
subject to a petition of any insolvency, creditors or bankruptcy law, or (iv)
has a receiver, liquidator or trustee of substantially all its assets appointed
by a court of competent jurisdiction. In the event of such immediate Agreement
termination by Service Company, the termination option as set forth in Paragraph
1(B) of this Article VI shall apply. In the event of immediate Agreement
termination by Client, Client shall have the right to exercise its options upon
termination as set forth in Paragraph 1 of this Article VI.
- 7 -
<PAGE>
ARTICLE VII
-----------
GOVERNING LAW
- -------------
This Agreement shall be governed by, and its provisions construed in
accordance with, the laws of the State of Georgia.
ARTICLE VIII
------------
INVALID PROVISIONS
- ------------------
In the event any provision of this Agreement shall be held to be invalid,
unenforceable or in conflict with applicable law, then the validity of the other
provisions of this Agreement shall not be deemed to be adversely affected but
shall remain in full force and effect.
ARTICLE IX
----------
EXCLUSIVITY
- -----------
This is an exclusive Agreement between Service Company and Client to the
extent Service Company shall be assigned and provide services under this
Agreement for all Claims and/or losses occurring under Exposures, except as may
be otherwise provided herein.
ARTICLE X
---------
AMENDMENT AND WAIVER
- --------------------
No amendment or waiver of any provision of this Agreement, and no consent
to any departure herefrom, shall be effective or binding unless and until set
forth in a writing signed by each party, and then any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it is given. No notice or any other communication given by one party
hereto to the other party shall be construed to constitute approval or
ratification by the other party of any matter contained or referred to in such
notice, unless the same be consented to by the other party in writing.
ARTICLE XI
----------
ENTIRE AGREEMENT
- ----------------
This Agreement, together with the exhibits attached hereto, constitutes the
entire agreement between the parties relating to the subject matter hereof, and
there exist no other written or oral understandings, agreements or assurances
with respect to such matters except as are set forth herein. Unless expressly
stated, this Agreement confers no rights on any person or business entity that
is not a party hereto.
- 8 -
<PAGE>
ARTICLE XII
-----------
NOTICES
- -------
All notices, requests and other communications concerning this Agreement
from either party to the other shall be in writing and delivered either
personally or by certified mail, return receipt requested. Any such notice,
request or other communication shall be deemed to have been given on the date of
personal delivery or, if mailed, on the date of mailing. All communications
shall be addressed as follows:
If to Service Company:
CRAWFORD & COMPANY
5620 Glenridge Dr., N.E.
Atlanta, Georgia 30342
Attn: Mr. B. W. Crawley
Vice President
If to Client:
KWIK WASH LAUNDRIES, L.P.
4240 Bronze Way
Dallas, Texas 75237
Attn: Mr. Chuck Michael
Director Human Resources/Internal Saftey
ARTICLE XIII
------------
ASSIGNMENT
- ----------
Neither party may assign its rights or obligations under this Agreement
without the prior written consent of the other party.
ARTICLE XIV
-----------
BINDING EFFECT
- --------------
This Agreement shall be binding upon and inure to the benefit of each party
hereto and their respective permitted successors and permitted assigns.
ARTICLE XV
----------
DISPUTE RESOLUTIONS
- -------------------
Any disputes under this Agreement shall be finally determined by a single
arbitrator in arbitration proceedings, which may be brought by either party, in
Atlanta, Georgia, in accordance with the rules of the American Arbitration
Association. In the event of any arbitration in any way arising out of or
relating to this Agreement, the prevailing party shall be entitled to recover
from the other party, the prevailing party's costs and expenses.
- 9 -
<PAGE>
ARTICLE XVI
-----------
COUNTERPARTS
- ------------
This Agreement may be executed in one or more counterparts, each of which
shall be considered an original, and all of which shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties by their authorized agents have caused this
Agreement to be executed as of the date first written above.
KWIK WASH LAUNDRIES, L.P. CRAWFORD & COMPANY
By KWL, Inc., General Partner
By: /s/Robert E. Bailey By: /s/ B.W. Crawley
-------------------------- --------------------------
KWL, Inc. General Partner
Robert E. Bailey
TITLE: Vice President & General Counsel TITLE: Vice President
--------------------------------- ------------------------
Date:_________________________ Date: 10-24-96
-------------------------
- 10 -
<PAGE>
EXHIBIT A TO CLAIM SERVICE AGREEMENT #10864
-------------------------------------------
For Program #10722
------------------
Client Self-Insured Exposures
-----------------------------
Exposure Type(s)
- ----------------
General Liability
Products Liability
Public Liability Medical Payments
- 11 -
<PAGE>
EXHIBIT B TO CLAIM SERVICE AGREEMENT #10864
-------------------------------------------
For Program #10722
------------------
Schedule of Claims Service Fees and Expenses
--------------------------------------------
Section B1. Flat Rate Services.
- ---------- ------------------
B1.1 Flat Rate Loss Exposure Claims.
------------------------------
<TABLE>
<CAPTION>
Flat Rate
Type of Loss Exposure Fee Per Anticipated Number Anticipated
Claim Claimant Of Claimants Fees
- --------------------- -------- ------------------ -----------
<S> <C> <C> <C>
Commercial
General Liability $362.00 34 $12,308.00
Public Liability
Medical Payments $362.00 31 $11,222.00
----------
Subtotal $22,620.00
Administrative Service Center Fee (8% of above) $ 1,810.00
----------
Flat Rate Services Fee $25,412.00
</TABLE>
B1.2 Payment of Flat Rate Services Fee. Client shall pay the Flat Rate
---------------------------------
Services Fee provided in Section B1.1 to Service Company in twelve (12) equal
------------
monthly installments of $2,117.66. At the first of each monthly period during
the term of this Agreement, monthly billings in said amount will be submitted to
Client by Service Company and such billings will be paid by Client to Service
Company within thirty (30) days of such billing.
B1.3 Adjustment of Flat Rate Services Fee. One year after the termination of
------------------------------------
this Agreement, Service Company shall provide to Client a statement setting
forth the actual number of types of Claims serviced by Service Company during
the term hereof. If such statement shows that the Flat Rate Services Fee paid to
Service Company during the term hereof as set forth in Section B1.2 is in excess
------------
of the amount of such fees calculated on the basis of the actual number of
claimants serviced during the term hereof, Service Company shall immediately
apply such amount as a credit to Client. If such statement shows that the Flat
Rate Services Fee paid to Service Company during the term hereof as set forth in
Section B1.2 is less than the amount of such fee calculated on the basis of the
- ------------
actual number of claimants serviced during the term hereof, Client shall pay
such additional amount to Service Company within ninety (90) days after Client
receives such statement and a billing for such additional amount.
B1.4 SISDAT Fee. For any Claims handled on a time and expense basis, SISDAT
----------
shall be charged on the basis of $15.00 per claimant which shall be adjusted by
Service Company as to the actual number of time and expense claimants as stated
in Section B1.3.
------------
- 12 -
<PAGE>
B1.5 Administrative Service Center. For all Claims handled on a flat rate fee
-----------------------------
per claimant basis the Administrative Service Center fee in Section B1.1 shall
------------
be adjusted to the percentage of the actual flat rate fees, such adjustment to
be included in the Adjustment of Flat Rate Services Fee as is referenced in
Section B1.3.
- ------------
Section B2. Time and Expense Services.
- ---------- -------------------------
B2.1 Time and Expense Loss Exposure Claims. Products Liability claims, and all
-------------------------------------
subrogation investigation, second injury fund, third party contribution, social
security and any other recovery or offset investigation or activity with respect
to any Claim, including arbitration, mediation, litigation and any other
activity, except for a first notice letter to the adverse party or entity, shall
be handled on a time and expense basis by Service Company at Service Company's
then prevailing hourly rate and expense method of billing.
B2.2 Canadian Pricing. Claims occurring in Canada shall be handled on a time
----------------
and expense basis by Service Company at its then prevailing hourly rate and
expense method of billing. All revenue paid to Service Company for Canadian
services shall be paid in U.S. funds.
B2.3 Puerto Rican and Virgin Island Claims. Claims occurring in Puerto Rico and
-------------------------------------
the Virgin Islands shall be handled by Service Company on a time and expense
basis at the prevailing hourly rate and expense method of billing.
B2.4 Flat Rate Time Parameter. The flat rate fees per claimant and the percent
------------------------
of the total amount of such flat rate fees per claimant reflected in Section
-------
B1.1 include the provision of Claim and Administrative Service Center services
- ----
by Service Company for Client for a period of two (2) years from the date of
accident/occurrence for all accident/occurrence lines of exposure and two (2)
years from the date Claim is made for all claims made lines of exposure. Any
Claim(s) not concluded within such time parameters shall be handled to a
conclusion by Service Company for Client for an additional fee per claimant each
two-year period or part of any two-year period thereafter that such Claim(s)
have not been concluded through the fifth two-year period. Thereafter, any such
Claims not concluded will be handled to a conclusion by Service Company for
Client on a time and expense basis at Service Company's then prevailing hourly
rate and expense method of billing. Such billings shall be paid by Client to
Service Company within thirty (30) days of billing. The additional fees per
claimant are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
EXPOSURE Second Third Fourth* Fifth* Subsequent
Two-year Two-year Two-year Two-year Years
Period Period Period Period
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COM GEN $398.25 $398.25 $398.25+CPI UP+CPI T&E
- --------------------------------------------------------------------------------
</TABLE>
- 13 -
<PAGE>
CPI = The average Customer Price Index percentage figure as reflected in the
U.S. Bureau of Labor Statistics Report published two months prior to the
beginning of the new pricing period.
* For the Fourth Two-Year Period, the flat rate amount shall be the Third
Two-Year Period's amount plus the applicable CPI percentage increase. The Fifth
Two-Year Period's amount shall be the Fourth Two-year Period's amount (Unit
Pricing or UP) plus the applicable CPI percentage increase.
Any Claims being supervised by Service Company's Administrative Service Center
that have not been concluded within two (2) years from the date of
accident/occurrence for all accident/occurrence lines of exposure and two (2)
years from the date Claim is made for all claims made lines of exposure shall be
supervised to a conclusion by the Administrative Service Center for Client from
that date forward on a time and expense basis at the Administrative Service
Center's then prevailing hourly rate and expense method of billing.
B2.5 Catastrophe Claim. Any accident or occurrence resulting in ten (10) or
-----------------
more declared or potential Claims or claimants shall be treated as a
"Castastrophe Claim." Castastrophe Claims for loss exposure Claims under
Section B1.1 shall be handled on a time and expense basis by Service Company at
- ------------
Service Company's then prevailing hourly rate and expense method of billing.
B2.6 Claims Previously Serviced. Client shall pay Service Company at Service
--------------------------
Company's prevailing hourly rate and expense method of billing, for all services
provided in connection with flat rate loss exposure Claims in Section B1.1 when
------------
the servicing process was commenced by and entity other than Service Company
(including, without limitation, by Client) before such Claim was assigned to
Service Company.
B2.7 Administrative Service Center. The Administrative Service Center
-----------------------------
supervisory fees for any Claim handled on other than a flat rate per claimant
basis shall be handled on a time and expense basis at the Administrative
Service Center's then prevailing hourly rate and expense method of billing.
B2.8 Payment of Time and Expense Claims. For those Claims set forth in Section
---------------------------------- -------
B2 that will be billed on a time and expense basis, if any, Service Company
- --
shall submit statements to Client on a monthly basis for Claims closed during
such period and Client shall pay such invoices within thirty (30) days of the
date of each such statement. If any such time and expense Claim is not
concluded within three (3) months from the date such Claim is assigned to
Service Company hereunder, Service Company may submit an interim time and
expense billing to Client provided that a significant amount of time and expense
activity has been recorded on such Claim. Subsequent interim bills will be
submitted thereafter provided that a significant amount of time and expense
activity has been recorded on such Claim. Any such Claim so interim billed
shall continue to be handled by Service Company after such interim billing(s) on
a time and expense basis at Service Company's then prevailing hourly rate and
expense method of billing in effect at the time of such interim billing(s). All
statements in respect to Claims handled on a time and expense basis are due and
shall
- 14 -
<PAGE>
be paid in full by Client within thirty (30) days of the date of such
statement.
Section B3. Services Included in Sections B1 and B2
- ---------- ---------------------------------------
B3.1 SISDAT Reports. Computer generated listings as set forth in Article III,
--------------
Paragraph 2(J), are included in the pricing set forth under Sections B1 and B2.
------------------
B3.2 Monthly Magnetic Claim Tapes. If requested by Client, Claim data under this
----------------------------
Agreement will be provided to Client by Service Company at no additional cost to
Client, via Service Company's standard monthly magnetic Claim tape.
Section B4. Services Not Included in Sections B1 and B2.
- ---------- -------------------------------------------
B4.1 Material Damage and Property Appraisals. Appraisals shall be handled by
---------------------------------------
Service Company at its then prevailing appraisal fee schedules. Billings for
such appraisal services, if any, will be paid by Service Company from the Loss
Fund Account as Allocated Loss Adjustment Expense.
B4.2 Conflict of Interest Claim Assignment. In the event one of Service
-------------------------------------
Company's branch office locations receives a Claim assignment from Client
pertaining to this Agreement after having already accepted a Claim assignment
for some other party involved in the same accident or occurrence, then Service
Company branch office location will notify Service Company's Administrative
Service Center designated by Service Company. That center will contact Client to
determine a mutually agreeable claim service organization to be assigned to
provide claims adjustment services on behalf of Client in respect of the
particular assigned Claim. Service Company's designated Administrative Service
Center will then assign the Claim to the agreed upon claim service organization
on behalf of Client and will direct and control the claim service organization
in the complete and total investigation, settlement or defense of the Claim on
behalf of Client. The claim service organization's bill will be audited,
approved and paid by the Service Company's designated Administrative Service
Center. Such billings, if any, will be paid as an Allocated Loss Adjustment
Expense.
B4.3 Prehearing Conferences and Informal Hearings. In those jurisdictions
--------------------------------------------
that permit adjusters to attend prehearing conferences and/or informal hearings
on behalf of Client, Service Company will appear at such conferences and/or
hearings on Client's behalf. Billings for such appearances, if any, will be at
time and expense based upon Service Company's then prevailing hourly rate and
expense method of billing and will be included with Service Company billing for
time and expense services as set forth in Section B2.8.
------------
B4.4 Claims in Excess of Retention. The Basic Claim Service Fees as referenced
-----------------------------
in Section B1 apply only to Claims handling within Client's self-insurance
----------
retention. Once Client's self-insurance retention(s), either specific or annual
aggregate, has/have been exceeded, Service Company will be considered to have
earned its fee(s) as set forth under this Agreement.
-15-
<PAGE>
Section B5. Other Services. Only those services specifically set forth in
- ---------- --------------
this Exhibit B are a part of this Agreement. Any other services that Client may
---------
need or desire with respect to this Agreement will be subject to separate
negotiation between Client and Service Company.
Section B6. Taxes. Any Canadian (Federal, provincial, territorial or local)
- ---------- -----
or any domestic (Federal, state or local) sales taxes, which Service Company may
be required to pay or collect or which may be incurred by or assessed against
Service Company, under any existing or future law, relating to the sale,
delivery, rendering or provision of services to Client pursuant to this
Agreement, shall be for the account of Client. Service Company shall bill
Client and Client shall promptly pay Service Company such sales taxes in
accordance with the provisions of the applicable law and regulations concerning
the collection of such sales taxes and Service Company shall remit such taxes
to the appropriate taxing authority.
- 16 -
<PAGE>
EXHIBIT C TO CLAIM SERVICE AGREEMENT #10864
-------------------------------------------
For Program #10722
------------------
FILE RETENTION AND DESTRUCTION POLICY
------------------------------------
LIABILITY FILES: Destroy two (2) years after applicable statute of limitations
- ---------------
has expired.
Exceptions:
----------
a. Suits - retain until expiration of appellate process. Then
-----
destroy.
b. Mental Incompetents - retain indefinitely.
-------------------
c. Infant (Minor) Claims - retain until infant reaches majority plus
---------------------
applicable statute of limitations plus two (2) years.
FIRST PARTY CLAIMS, SUBROGATION/ARBITRATION, INCIDENT REPORTS, AND BOND LOSSES:
- ------------------------------------------------------------------------------
Destroy one (1) year after file closing.
Exceptions:
-----------
a. Suits - retain until expiration of appellate process. Then
-----
destroy.
b. Prevailing Statute Precludes Destruction in one (1) year.
WORKERS' COMPENSATION CLAIMS:
- ----------------------------
Medical Only Claims Excluding Occupational Disease Claims: Destroy six (6)
---------------------------------------------------------
months after applicable statute of limitations has expired.
Exceptions:
----------
a. Prevailing Statute Precludes Destruction in six (6) months.
Other Than Medical Only Claims Excluding Occupational Disease Claims:
--------------------------------------------------------------------
Destroy one (1) year after applicable statute of limitations has expired.
Exceptions:
----------
a. Formal or Informal Hearing Level Claims - retain until expiration
---------------------------------------
of appellate process. Then destroy.
b. Prevailing Statute Precludes Destruction in one (1) year.
Occupational Disease Claims: Destroy four (4) years after applicable
---------------------------
statute of limitations has expired.
Exceptions:
----------
a. Formal or Informal Hearing Level Claims - retain until
---------------------------------------
expiration of appellate process. Then destroy.
b. Prevailing Statute Precludes Destruction in four (4) years.
- 17 -
<PAGE>
EXHIBIT D TO CLAIM SERVICE AGREEMENT #10864
-------------------------------------------
For Program #10722
------------------
Loss Fund Account - Monthly Reimbursement
-----------------------------------------
Section D1. Loss Fund Account.
- ---------- -----------------
D1.1 Service Company's Loss Fund Account. Service Company shall use the Loss
-----------------------------------
Fund Account as agreed to in Article III, Paragraph 8 at SunTrust Bank, Atlanta,
Georgia, for the payment of Claims and Allocated Loss Adjustment Expenses and
for deposit of Recoveries.
D1.2 Imprest Deposit. Client shall, before payment of any Claim or Allocated
---------------
Loss Adjustment Expense is made in accordance with this Agreement, provide to
Service Company an initial "Imprest Deposit" for deposit to the Loss Fund
Account. For the purposes hereof, the initial Imprest Deposit shall be an amount
to be fixed initially by Client and Service Company that is equivalent to three
(3) months anticipated payments of Claims and Allocated Loss Adjustment Expense,
net of Recoveries, or fifteen thousand dollars ($15,000), whichever is greater,
to be maintained by Service Company as a Loss Fund Deposit ("Deposit") for
payment of Claims and/or losses and Allocated Loss Adjustment Expenses.
D1.3 Security. As security for the due and punctual payment and performance of
--------
all indebtedness and obligations of Client to Service Company, whether now
existing or hereafter arising, however evidenced, whether direct or indirect,
absolute or contingent, individually or jointly with any other person, and
including, without limitation, all indebtedness, payments, reimbursement of
funds, and other moneys owed by Client to Service Company pursuant to this
Agreement (the "Secured Obligations"), Client hereby pledges, assigns,
transfers, sets over, conveys and delivers to Service Company, and hereby grants
to Service Company a security interest in, all right, title and interest of
Client in and to the moneys from time to time on deposit in the Loss Fund
Account, including, without limitation, Recoveries and the Deposit (the
"Funds"). Client acknowledges and agrees that, so long as this Agreement remains
in force and effect, the Funds shall constitute cash collateral as that term is
defined by Section 363 (a) of the Bankruptcy Code, 11 U.S.C. Section 363 (a).
Client further acknowledges and agrees that the foregoing security interest is
perfected in favor of Service Company by Service Company's control over the
accounts into which the Funds are deposited and, in the alternative, by
possession of the Funds by Service Company's bank where the Loss Fund Account is
established, who, for purposes of the security interest, shall be and is hereby
deemed to be the Bailee of Service Company within the meaning of Section 9-305
of the Uniform Commercial Code. Client hereby authorizes Service Company at any
time, and regardless of whether there exists or is continuing an event of
default under this Agreement, to apply and setoff without notice any
indebtedness due or to become due to Service Company from Client, including,
without limitation, the Funds, against and in satisfaction of any of the Secured
Obligations of Client secured hereby, regardless of the nature of such
obligations or the time they arise.
- 18 -
<PAGE>
D1.4 Monthly Billings. Service Company will bill Client at the beginning of
----------------
each month for the previous month's payments of Claims and Allocated Loss
Adjustment Expenses, net of Recoveries. The amount billed will be equal to the
payments reflected on the monthly SISDAT Loss Fund Activity Report. Client shall
pay such amounts within thirty (30) days of such billing.
D1.5 Quarterly Adjustments. Service Company will conduct a quarterly analysis
---------------------
of the Imprest Deposit in the Loss Fund Account based upon the three (3) most
current months of the Loss Fund Account activity. If the analysis determines
that the average of Loss Fund Account activity for the immediately preceding
three (3) months exceeds the then existing Imprest Deposit, then Service Company
will bill Client an amount necessary to increase the Imprest Deposit to the
level stipulated in Section D1.2, above. Client shall pay such billings within
------------
thirty (30) days of such billing.
D1.6 Large Dollar Payments. Service Company will notify Client via telephone
---------------------
whenever any payment of a single Claim or Allocated Loss Adjustment Expense is
to be made for twenty-five thousand dollars ($25,000) or more. Client will wire
transfer to the Loss Fund Account the amount of such payment within two (2)
working days of such telephone notice. Upon receipt of such funds, Service
Company will release such large dollar payment check. Service Company shall
apply such remittances by Client as payments during the month so remitted, and
such payments will be deducted from Client's monthly billing as set forth under
Section D1.4 above. Service Company will not consider such large dollar payment
- ------------
amounts in computing the quarterly adjustments to the Imprest Deposit required
as set forth in Section D1.5.
------------
D1.7 Additional Requirements. Should Client not maintain Imprest Deposit
-----------------------
balances in accordance with this Exhibit D in an amount sufficient to avoid any
---------
bank charges associated with the Loss Fund Account, Client shall pay on demand
all bank charges assessed against the Loss Fund Account and shall take such
further actions as Service Company or SunTrust Bank may reasonably request for
Service Company to replenish the Loss Fund Account.
D1.8 Adequate Funds. Service Company may draw and authorize checks, drafts and
--------------
other items on the Loss Fund Account only if Service Company determines that it
has sufficient funds in the Loss Fund Account to cover such checks, drafts and
other items.
D1.9 Termination of Loss Fund Account. Service Company may terminate the Loss
--------------------------------
Fund Account at any time, in its sole discretion, with or without cause.
D1.10 Payments in Excess of Retention. Service Company will issue checks from
-------------------------------
the Loss Fund Account for amounts in excess of Client's annual aggregate
self-insurance retention unless Client specifically instructs Service Company to
the contrary so long as the Loss Fund Account balance is adequate to accommodate
such amounts or necessary additional deposits are made by Client to the Loss
Fund Account to adequately accommodate such amounts. Service Company will not
intentionally issue a check from the Loss Fund Account in payment of any amount
in excess of Client's specific
- 19 -
<PAGE>
per claimant or per occurrence self-insurance retention, as identified by Client
to Service Company, until such time as Client transfers funds for the full
amount of such payment into the Loss Fund Account. Service Company assumes and
has no responsibility or obligation to recover from any of Client's excess
insurer(s) any amounts represented by checks issued from the Loss Fund Account.
D1.11 Financial Security. Client also agrees to provide Service Company, within
------------------
fifteen (15) days from the effective date of this Agreement, with financial
security in the form of an Evergreen Irrevocable Letter of Credit or an Interest
Bearing Cash Deposit and Cash Deposit Agreement to ensure that (i) the Loss Fund
Account is at all times funded in the amounts necessary to enable Service
Company to pay Claims and/or losses and Allocated Loss Adjustment Expenses as
set forth in this Agreement, and (ii) service fees are paid as set forth in this
Agreement. Such financial security shall be equal in amount to two (2) months'
anticipated Loss Fund Account activity, or fifty thousand dollars ($50,000),
whichever is greater. Service Company will conduct a quarterly analysis of the
Loss Fund Account activity based upon the three (3) most current months of Loss
Fund Account activity. If the analysis determines that the Loss Fund Account
activity warrants an increase in the required financial security hereunder,
Service Company will notify Client of the required increase and Client will
provide such increase to Service Company within thirty (30) days of such notice.
-20-
<PAGE>
EXHIBIT B
FORM OF PROMISSORY NOTE
$15,000,000 January 8, 1997
New York, New York
FOR VALUE RECEIVED, Coinmach Laundry Corporation, a Delaware corporation
("Maker"), hereby unconditionally promises to pay to the order of Richard F.
Enthoven, as agent for and on behalf of each of the individuals listed on
Schedule A attached hereto ("Payee"), or to the Escrow Agent (as hereinafter
- ----------
defined) as nominee for and on behalf of Payee, in each case subject to the
terms and conditions of this Promissory Note, in lawful money of the United
States of America and in immediately available funds, the principal sum of
Fifteen Million Dollars ($15,000,000) (the "Principal Amount"), in the amounts
and on the respective dates set forth on the amortization schedule attached
hereto, together with interest thereon at the rate of 9.875% per annum.
Interest shall accrue from the date hereof until this Promissory Note is paid in
full, shall be payable in arrears at the same time each installment of principal
is due and shall be computed based on a 360-day year in accordance with the
actual number of days elapsed. In no event shall interest charged hereunder, in
whatever manner such rate of interest may be characterized or computed, exceed
the highest rate permissible under applicable law.
All payments or prepayments of principal under this Promissory Note
(including any principal payments made as a result of the acceleration of any
payment obligations hereunder) shall be payable by Maker as follows: (i) an
amount equal to seventy percent (70%) of each principal payment shall be paid to
Merrill Lynch Trust Co. (the "Escrow Agent"), to be held by the Escrow Agent
subject to the terms and conditions of that certain Escrow Agreement, dated as
of even date herewith by and among the Maker, Payee and the Escrow Agent (the
"Escrow Agreement"), and (ii) an amount equal to thirty percent (30%) of each
principal payment shall be paid to Payee.
This Promissory Note is secured by a pledge of all of the capital stock of
Coinmach Corporation, a Delaware corporation and a wholly-owned subsidiary of
Maker, pursuant to that certain pledge agreement, dated as of even date
herewith, between the Maker and the Payee (the "Pledge Agreement"), the
provisions of which are incorporated herein by reference and form a part hereof.
If (a) Maker fails to make any payment of principal or interest on this
Promissory Note when due, (b) a default in the payment of principal or interest
under the Credit Agreement (as defined in the Pledge Agreement) occurs and is
continuing, which default results in the acceleration of all of the indebtedness
thereunder prior to the express maturity thereof, or (c) a court of competent
jurisdiction enters a judgement, decree or order for relief in respect of the
Maker in an involuntary case or proceeding under any federal or state bankruptcy
law, which shall (i) approve as properly filed a petition seeking
reorganization,
<PAGE>
arrangement, adjustment or composition in respect of the Maker, (ii) appoint a
custodian, receiver, trustee, liquidator or similar official for the Maker or
for substantially all of its property or assets, or (iii) order the winding-up
or liquidation of its affairs, and such judgement, decree or order shall remain
unstayed and in effect for a period of sixty (60) consecutive days, then all
unpaid principal of and all accrued and unpaid interest on this Promissory Note
shall become and be immediately due and payable.
Payment due under this Promissory Note may be offset by the Maker in the
event of any breach of or default under, or other claim by the Maker arising
under, that certain Stock Purchase Agreement, dated as of November 25, 1996, by
and among Maker, Payee and certain other parties thereto (the "Purchase
Agreement"), including, without limitation, any indemnity obligations arising
under Section 11.2(a) thereof, or any other agreement between the Maker and the
Payee executed in connection with the Purchase Agreement or contemplated
thereunder. Any such offset (each, an "Offset") shall be treated as a
prepayment of principal due on this Promissory Note and applied against the next
succeeding payment or payments of principal due hereunder. Any such Offset
hereunder shall be subject to the applicable provisions contained in the
Purchase Agreement and the Escrow Agreement.
Any notice relating to this Promissory Note shall be in writing and shall
be deemed to be effective if given and received in the manner expressly provided
in the Purchase Agreement.
This Promissory Note may be prepaid, in whole or in part, at any time
without penalty or premium, with interest to the date of such prepayment;
provided, however, that this Promissory Note shall be prepaid in part in a
- -------- -------
principal amount of not less than $7,500,000 (net of any prepayments made
hereunder) on or prior to the date on which the Maker consummates the issuance
and sale, in an underwritten public offering, of shares of any class of Maker's
voting equity securities having an aggregate offering value of at least $50
million. Any such prepayment (other than prepayments deemed to have been made
in connection with Offsets hereunder) shall be credited first against accrued
and unpaid interest and second against unpaid principal hereof.
Maker hereby waives presentment for payment, demand, protest, notice of
protest and notice of dishonor or nonpayment of this Promissory Note.
THIS PROMISSORY NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN
MADE IN NEW YORK, NEW YORK AND SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS
OF LAW PROVISIONS.
EACH OF MAKER AND PAYEE IRREVOCABLY CONSENTS AND SUBMITS TO THE NON-
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN
<PAGE>
DISTRICT OF NEW YORK AND WAIVES ANY OBJECTION BASED ON VENUE OR FORUM NON
----- ---
CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN ARISING UNDER THIS
- ----------
PROMISSORY NOTE OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF MAKER AND PAYEE IN RESPECT OF THIS PROMISSORY NOTE OR THE
TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE, AND AGREES THAT ANY
DISPUTE ARISING OUT OF THE RELATIONSHIP BETWEEN MAKER AND PAYEE OR THE CONDUCT
OF SUCH PERSONS IN CONNECTION WITH THIS PROMISSORY NOTE OR OTHERWISE SHALL BE
HEARD ONLY IN THE COURTS DESCRIBED ABOVE. EACH OF MAKER AND PAYEE HEREBY WAIVES
PERSONAL SERVICE OF PROCESS AND AGREES THAT A SUMMONS AND COMPLAINT COMMENCING
AN ACTION OR PROCEEDING IN ANY SUCH COURT SHALL BE PROPERLY SERVED AND SHALL
CONFER PERSONAL JURISDICTION IF SERVED BY REGISTERED OR CERTIFIED MAIL TO SUCH
PARTY. EACH OF MAKER AND PAYEE CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY MADE.
Whenever possible each provision of this Promissory Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Promissory Note shall be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Promissory Note. All references
in this Promissory Note to Maker, Payee and Escrow Agent shall be deemed to
include, as applicable, a reference to their respective successors and assigns.
The provisions of this Promissory Note shall be binding upon and shall inure to
the benefit of the successors and assigns of Maker and the successors and
assigns of Payee.
IN WITNESS WHEREOF, Maker has executed this Promissory Note as of the day
and year first written above.
COINMACH LAUNDRY CORPORATION
By: __________________________
Name:
Title:
<PAGE>
AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
=================================================================
INSTALLMENTS PORTION OF PORTION OF
OF PRINCIPAL PRINCIPAL PRINCIPAL
TO BE PAID INSTALLMENT TO INSTALLMENT TO
ON PAYMENT BE PAID TO BE PAID TO
PAYMENT DATE DATE ESCROW AGENT SELLERS' AGENT
=================================================================
<S> <C> <C> <C>
January 15, 1998 $1,000,000 $ 700,000 $ 300,000
- -----------------------------------------------------------------
January 15, 1999 $1,000,000 $ 700,000 $ 300,000
- -----------------------------------------------------------------
January 15, 2000 $2,000,000 $1,400,000 $ 600,000
- -----------------------------------------------------------------
January 15, 2001 $2,000,000 $1,400,000 $ 600,000
- -----------------------------------------------------------------
January 15, 2002 $2,000,000 $1,400,000 $ 600,000
- -----------------------------------------------------------------
January 15, 2003 $3,000,000 $2,100,000 $ 900,000
- -----------------------------------------------------------------
June 15, 2004 $4,000,000 $2,800,000 $1,200,000
=================================================================
</TABLE>
<PAGE>
AMORTIZATION PAYMENT SCHEDULE
<TABLE>
<CAPTION>
===============================================================
OFFSET OF
PRINCIPAL PRINCIPAL PRINCIPAL PURSUANT
PAYMENT DATE PAYMENT PREPAYMENT TO ESCROW AGREEMENT
===============================================================
<S> <C> <C> <C>
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
===============================================================
</TABLE>
<PAGE>
SCHEDULE A
----------
LIST OF SELLERS
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr.,
Trustee U/D/T February 4, 1994
<PAGE>
EXHIBIT C
FORM OF ESCROW AGREEMENT
This ESCROW AGREEMENT (the "Agreement") is made and entered into as of
---------
January 8, 1997, by and among Coinmach Corporation, a Delaware corporation (the
"Buyer"), Richard F. Enthoven ("Sellers' Agent"), as agent for and on behalf of
----- --------------
each of the parties listed on Schedule A attached to this Agreement (each such
----------
party, a "Seller" and, collectively, the "Sellers"), and Merrill Lynch Trust
------ -------
Company of North Carolina as escrow agent (the "Escrow Agent").
------------
RECITALS
--------
WHEREAS, contemporaneously herewith Sellers are selling their shares
of common stock, par value $.01 per share, of GP and their shares of common
stock, par value $1.00 per share, of LP to Buyer pursuant to the terms and
conditions of that certain Stock Purchase Agreement, dated as of November 25,
1996, among Sellers, the Partners, the Partnership and Buyer (the "Stock
-----
Purchase Agreement");
- ------------------
WHEREAS, Sellers and Buyer desire to establish certain escrow accounts
pursuant to the terms and conditions of the Stock Purchase Agreement; and
WHEREAS, a copy of this Agreement has been delivered to the Escrow
Agent, and the Escrow Agent is willing to act as Escrow Agent hereunder;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements hereinafter set forth, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
AGREEMENT
---------
1. Definitions. All capitalized terms used in this Agreement,
-----------
unless otherwise defined herein, shall have the respective meanings given to
such terms in the Stock Purchase Agreement.
2. Appointment of Escrow Agent. The Escrow Agent is hereby
---------------------------
appointed to act as escrow agent hereunder, and the Escrow Agent accepts such
appointment and agrees to act as such.
3. Establishment of Escrow Funds and Delivery of Note.
--------------------------------------------------
(a) On the date hereof, (i) Buyer and Sellers' Agent shall
deliver to the Escrow Agent the Note to be held in
<PAGE>
escrow by the Escrow Agent in a secure location at Merrill Lynch Trust Company
of New Jersey, 300 Davidson Avenue, Somerset, New Jersey 08873 and (ii) Sellers'
Agent shall deliver to the Escrow Agent an amount in cash equal to $575,000 (the
"Benefits Amount") to establish a fund (the "Escrow Benefits Fund") in a
--------------- --------------------
segregated income generating account with the Escrow Agent established solely
for the purposes set forth herein.
(b) In addition to payments made to the Escrow Agent pursuant to
clause (a) above, from time to time during the term of this Agreement, Buyer
shall deliver to the Escrow Agent certain payments of principal on the Note in
accordance with the terms of the Note to establish a fund (the "Escrow Note
-----------
Fund" and, together with the Escrow Benefits Fund, the "Escrow Fund") in a
- ---- -----------
segregated income generating account with the Escrow Agent established solely
for the purposes set forth herein.
(c) The Escrow Agent (i) hereby acknowledges receipt of the
Benefits Amount and the Note and (ii) shall hold and maintain separately each of
the Escrow Benefits Fund, the Escrow Note Fund and the Note (collectively, the
"Escrowed Interests") strictly in accordance with the terms and conditions of
------------------
this Agreement.
4. Disbursements and Prepayments of the Escrowed Interests.
-------------------------------------------------------
(a) If at any time during the term of this Agreement the Escrow
Agent receives written directions from the Buyer (each such direction, a
"Benefits Payment Notice") directing the Escrow Agent to disburse funds from the
-----------------------
Escrow Benefits Fund to Buyer at any time on or prior to August 8, 1997 (the
"Employee Outside Termination Date"), the Escrow Agent shall disburse from the
---------------------------------
Escrow Benefits Fund to the Buyer, within two (2) business days of receipt by
the Escrow Agent of any such Benefits Payment Notice, the amount or amounts set
forth in such Benefits Payment Notices. Within seven (7) business days after the
end of each calendar month commencing on the date of this Agreement, the Escrow
Agent shall deliver to the Buyer and Sellers' Agent a monthly report,
substantially in the form of Exhibit A attached hereto, setting forth the amount
of each payment (if any) made during such month from the Escrow Benefits Fund
accompanied by copies of all Benefits Payment Notices (if any) received from the
Buyer. Each Benefits Payment Notice delivered by Buyer to the Escrow Agent
hereunder shall set forth, among other things: (i) the name and job category of
each individual employed by the Partnership to whom a Sick Leave Payment (as
defined in subsection 4(b) below) or other payment is made, including the amount
of such Sick Leave Payment or other payment; (ii) the name and job category of
each individual whose employment by the Partnership has been terminated; and
(iii) with
-2-
<PAGE>
respect to each individual referred to in clause (ii) above, (A) the date of
termination of employment and (B) the total amount of severance or other
compensation paid by the Partnership to such individual (consisting of (x) the
Severance Payment (as defined in subsection 4(b) below) representing the portion
of severance compensation for which Buyer is responsible under subsection 4(b)
below and (y) the Excess Compensation Payment (as defined in subsection 4(b)
below) representing the portion of severance or other compensation for which
Sellers and Sellers' Agent are responsible under subsection 4(b) below, each of
which shall be separately disclosed).
(b) From time to time during the term of this Agreement, the
Partnership shall make severance payments (each such payment, a "Severance
---------
Payment") to certain full-time employees of the Partnership (each such employee,
- -------
a "Plan Employee"), other than officers, directors or Key Employees, as
-------------
determined below:
(i) any corporate office employee who is either (A)
terminated without cause by the Partnership at any time within 180 days of the
Closing Date or (B) continuously employed by the Partnership during the period
ending 180 days after the Closing Date, in each case, shall be entitled to a
Severance Payment in an amount equal to four (4) week's of such employee's
salary payable on the date of termination of employment;
(ii) any middle-management employee (consisting solely of
supervisors and branch managers) who is terminated without cause by the
Partnership at any time within 180 days of the Closing Date shall be entitled to
a Severance Payment in an amount equal to four (4) week's of such employee's
salary payable on the date of termination of employment; and
(iii) any other employee (other than those in clauses (i)
or (ii) above)) who is terminated without cause by the Partnership at any time
within 180 days of the Closing Date shall be entitled to a Severance Payment in
an amount equal to three (3) week's of such employee's salary payable on the
date of termination of employment.
In addition to the Severance Payments described in this
clause (b) above, promptly after January 8, 1997, Buyer shall also make payments
to certain full-time employees of the Partnership in respect of personal or sick
leave hours (each such payment, a "Sick Leave Payment") each such employee has
------------------
accrued as of such payment date in accordance with the sick leave policy of the
Partnership then in effect; provided, however, that no such employee shall
-------- -------
receive a Sick Leave Payment in respect of (x) the first forty (40) hours of
-3-
<PAGE>
accrued sick leave or (y) accrued sick leave, if any, in excess of ninety-six
(96) hours.
If and to the extent the Partnership or Buyer on or after
the Closing Date pays severance or other compensation of any kind (including,
but not limited to, payments related to accrued and unused vacation and personal
or sick leave) to any Plan Employee in an amount in excess of the Severance
Payment as determined in this subsection 4(b) (such excess amount, the "Excess
------
Compensation Payment"), Buyer shall be entitled to reimbursement from the Escrow
- --------------------
Benefits Fund in an amount equal to the Excess Compensation Payment by
delivering a Benefits Payment Notice to the Escrow Agent pursuant to subsection
4(a) of this Agreement.
(c) If at any time during the term of this Agreement Buyer
determines it is entitled to all or any portion of the Escrow Note Fund, Buyer
shall provide written notice to the Escrow Agent and the Sellers' Agent (the
"Payment Notice") stating that Buyer is entitled to payment out of the Escrow
--------------
Note Fund and/or a reduction of its payment obligations under the Note in
respect of Damages arising out of, resulting from or relating to those matters
set forth in clauses (i) through (v) of Section 11.2(a) of the Stock Purchase
Agreement, in each case in accordance with and subject to the terms and
provisions contained in the Stock Purchase Agreement (the amount of all such
Damages in any such Payment Notice, the "Payment Amount"). In addition to such
--------------
Payment Notice, Buyer shall provide reasonable documentation evidencing such
Damages with respect to the Payment Amount set forth in each Payment Notice. If
Sellers' Agent objects, in whole or in part (such objectionable portion, the
"Disputed Payment Amount"), to the Payment Amount, Sellers' Agent shall, within
-----------------------
fifteen (15) calendar days of the delivery of any such Payment Notice (the
"Objection Date"), deliver written notice (the "Objection Notice") to Buyer and
-------------- ----------------
the Escrow Agent setting forth the Disputed Payment Amount and detailing the
basis for such objection to the Payment Amount.
If the Escrow Agent does not, on or prior to the Objection Date,
receive an Objection Notice from Sellers' Agent, the Escrow Agent shall within
two (2) business days after the Objection Date: (i) disburse to Buyer from the
Escrow Note Fund, to the extent of sufficient funds therein, the Payment Amount
set forth in the Payment Notice; and/or (ii) if the funds in the Escrow Note
Fund are insufficient to disburse the full Payment Amount to Buyer, (A) disburse
to Buyer the remainder of the Escrow Note Fund and (B) offset the outstanding
principal amount of the Note (which offset shall be treated as a prepayment of
principal due under the Note and applied against the next succeeding payment or
payments of principal due under the Note) on a dollar-for-dollar basis by the
amount by which the Payment
-4-
<PAGE>
Amount exceeds the total amount of the Escrow Note Fund at such time (the
"Deficiency Amount").
------------------
If the Escrow Agent, on or prior to the Objection Date, receives
an Objection Notice from Sellers' Agent, the Escrow Agent shall, with respect to
such portion of the Payment Amount with respect to which no objection is made,
disburse such amount to Buyer and/or offset the outstanding principal amount of
the Note by such amount, as applicable, in accordance with the immediately
preceding sentence. To the extent Sellers' Agent disputes any Payment Amount set
forth in any Payment Notice, in whole or part, such dispute shall be resolved in
accordance with Section 5 hereof.
(d) If at any time or from time to time during the term of this
Agreement the Escrow Agent (i) receives a payment or prepayment of principal on
the Note (any such payment, a "Principal Payment") or (ii) is required to offset
-----------------
the outstanding principal amount of the Note by any Deficiency Amount in
accordance with Section 4(c) hereof, the Escrow Agent shall, in each case,
record on the Amortization Payment Schedule of the Note the receipt of such
Principal Payment or the amount of such offset (which recordation shall
permanently reduce the then outstanding principal amount of the Note by the
amount of the Principal Payment or the Deficiency Amount, as applicable). If any
Deficiency Amount applied against the Note equals or exceeds the amount of
principal then outstanding under the Note, the Escrow Agent shall fully offset
such principal amount then outstanding under the Note and cancel the Note by
marking the word "CANCELLED" across each page thereof and shall promptly deliver
the cancelled Note to Buyer.
Promptly after January 1, 1998 and promptly after each January 1
thereafter for so long as this Agreement is in full force and effect, if and to
the extent the outstanding principal amount of the Note is reduced in accordance
with the provisions of this clause (d) by the Escrow Agent at any time during
the preceding twelve-month period, (i) the Buyer shall deliver to the Escrow
Agent a replacement promissory note (the "Replacement Note") identical in all
----------------
respects to the Note, except that such Replacement Note shall have an
outstanding principal amount equal to the reduced principal amount of the Note
after giving effect to any such reductions, and (ii) the Escrow Agent, upon
receipt of the Replacement Note from the Buyer, shall cancel the Note and
promptly deliver the Note to the Buyer. The Replacement Note, once received by
the Escrow Agent from the Buyer, shall replace and supersede the Note for all
purposes under this Agreement. All references to the Note herein shall be deemed
to include, where appropriate, such Replacement Note.
-5-
<PAGE>
(e) All payments to be made by the Escrow Agent pursuant to the
terms and conditions of this Agreement shall be made by wire transfer of
immediately available funds to the account of the Buyer or the Sellers' Agent,
as applicable, in accordance with the wire transfer instructions set forth on
Schedule 4(d) attached hereto or in accordance with such other wire transfer
- -------------
instructions designated in writing by the Buyer or the Sellers' Agent on or
after the date hereof.
5. Arbitration.
-----------
(a) If the Escrow Agent and Buyer receive an Objection Notice on
or prior to the Objection Date, Buyer and Sellers' Agent shall enter into good
faith negotiations to resolve such Disputed Payment Amount. In the event that,
upon the expiration of the thirty (30) day period commencing on the Objection
Date (the "Deadlock Date"), Buyer and Sellers' Agent are unable to agree upon
-------------
the amount of the Disputed Payment Amount, Sellers' representative, Michael D.
Janick of Belew Averitt LLP ("SR") (or such other individual designated in
--
writing by Sellers' Agent to the Escrow Agent and Buyer), and Buyer's
representative, Richard D. Liebman of Ernst & Young LLP ("E&Y") (or such other
---
individual designated in writing by Buyer to the Escrow Agent and Sellers'
Agent), shall enter into good faith negotiations to resolve the Disputed Payment
Amount. In the event that SR and E&Y are unable to resolve any such Disputed
Payment Amount within thirty (30) calendar days after the Deadlock Date (the
"Representative Deadlock Date"), Buyer and Sellers' Agent shall, within ten (10)
- -----------------------------
calendar days from the Representative Deadlock Date (the "Submission Date"),
---------------
submit the Disputed Payment Amount to arbitration, which arbitration shall be
conducted in the manner set forth in Section 2.3 of the Stock Purchase
Agreement. Within two (2) business days after the Escrow Agent's receipt of
written notice (the "Negotiated Payment Notice") either (i) executed by Buyer
-------------------------
and Sellers' Agent setting forth a mutually acceptable Payment Amount negotiated
in good faith by Buyer and Sellers' Agent, (ii) executed by SR and E&Y setting
forth a Payment Amount negotiated in good faith by SR and E&Y, or (iii) executed
by the Arbitrator setting forth a final and binding resolution of the Disputed
Payment Amount by the Arbitrator, the Escrow Agent shall disburse such payment
amount in accordance with the provisions of Section 4 hereof.
(b) Except as otherwise provided in clause (a) of this Section
5, any and all other disputes or controversies arising out of or in connection
with (i) the interpretation, application, performance, nonperformance or breach
by any of the parties hereto of this Agreement, or (ii) any instruments executed
and delivered hereunder, shall be resolved by good faith negotiations between
the parties hereto; provided, however, that if such parties are unable to
-------- -------
resolve any such dispute or
-6-
<PAGE>
controversy, at the demand of any party hereto, such dispute or controversy
shall be determined by arbitration. Sellers' Agent, Buyer and, to the extent
such dispute or controversy involves an act or omission of the Escrow Agent
under this Agreement, the Escrow Agent, shall appoint an arbitrator
("Arbitrator") who is licensed by the American Arbitration Association ("AAA")
---------- ---
to arbitrate such dispute or controversy. In the event Sellers' Agent, Buyer
and, if applicable, the Escrow Agent, cannot agree on the selection of the
Arbitrator, each such party shall select one arbitrator who shall together
select the Arbitrator who shall arbitrate the matter. Sellers' Agent, Buyer and,
if applicable, the Escrow Agent, shall, within twenty (20) days thereafter
present their positions with respect to the dispute or controversy to the
Arbitrator together with such other materials as the Arbitrator deems
appropriate. The Arbitrator shall, after the submission of such evidentiary
materials, submit a written decision on such dispute or controversy to the
applicable parties hereto. Any determination by the Arbitrator with respect to
any such dispute or controversy shall be final and binding on the parties
hereto. The arbitration shall be conducted in Charlotte, North Carolina in
accordance with the commercial arbitration rules of the AAA as in effect for
commercial arbitrations conducted in Charlotte, North Carolina by the AAA. The
parties hereto agree that the costs and expenses of the arbitration (including
without limitation the cost of the Arbitrator) shall be borne in equal
proportions by each of the Escrow Agent, Sellers' Agent and Buyer; provided,
--------
however, that to the extent such dispute or controversy does not involve any act
- -------
or omission of the Escrow Agent under this Agreement, such costs and expenses
shall be borne 50% by Sellers' Agent and 50% by Buyer. Any party desiring to
commence an arbitration proceeding in accordance with this clause (b) shall so
notify the other parties hereto by written notice setting forth in reasonable
detail the nature of the dispute and the relief demanded.
6. Remedial and Corrective Actions by Buyer. Nothing in Sections 4
----------------------------------------
or 5 herein shall at any time prevent Buyer from (i) implementing such interim
measures as are reasonable under the circumstances until such Disputed Payment
Amount is resolved, without prejudice to Buyer's right to seek payment therefor
under this Agreement, (ii) taking any reasonable remedial and corrective action
for which Buyer does not elect to seek payment, in whole of in part, under this
Agreement and (iii) taking any remedial or corrective actions required or
directed by any court or administrative agency of competent jurisdiction,
without prejudice to Buyer's right to seek payment therefor under this
Agreement.
7. Cooperation by Parties. With respect to all matters covered by
----------------------
this Agreement, the parties agree to use their good faith efforts to cooperate
with each other and to provide to
-7-
<PAGE>
the other party such information as may be reasonably requested regarding these
matters, including providing access to and the right to copy, at the requesting
party's expense and during normal business hours, all relevant data, records,
studies, reports or other documents. Buyer and Sellers further agree to provide
each other reasonable access to their respective properties and employees, on a
mutually convenient basis. Such access to employees may include interviews or
attendance at depositions or legal or administrative proceedings or meetings and
conferences with governmental agencies.
8. Investment of Escrow Fund; Distribution of Interests.
----------------------------------------------------
(a) The Escrow Agent shall act as custodian of the Escrowed
Interests and, unless otherwise directed from time to time by Buyer and Sellers'
Agent with respect to the investment or reinvestment of the Escrow Benefits Fund
and the Escrow Note Fund, shall invest either or both of the Escrow Benefits
Fund and the Escrow Note Fund in shares of the CMA Fund, a registered money-
market fund. At the joint direction of Buyer and Sellers' Agent, the Escrow
Benefits Fund and the Escrow Note Fund shall also be invested from time to time
in (i) direct obligations of, or repurchase agreements collateralized by direct
obligations of, the United States Government (or agencies or instrumentalities
thereof) or any state of the United States (or agencies or instrumentalities of
any thereof) which (x) shall have maturities not in excess of one (1) year from
the date of acquisition or (y) bear interest that is exempt from federal income
taxation under the Internal Revenue Code of 1986, as amended, and which
obligations are rated in one of the two highest categories by Standard & Poor's
Ratings Service ("S&P"), a division of The McGraw-Hill Companies, Inc. or
---
Moody's Investors Service, Inc. ("Moody's"), (ii) certificates of deposit, time
-------
deposits or other interest bearing deposits of commercial banks having total
capital and surplus of at least $250,000,000 (the "Bank") as Buyer and Sellers'
----
Agent may from time to time direct and which shall have maturities not in excess
of ninety (90) days, (iii) a deposit reserve or such other money market account
available from time to time from the Bank, (iv) commercial paper maturing no
more than one (1) year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's, (v) municipal bonds having a rating of at least A-1 from S&P or at
least P-1 from Moody's, or (vi) any other investments approved in writing by
Buyer and Sellers' Agent. The Escrow Agent shall have no liability whatsoever
for any investment losses resulting from the investment or reinvestment of the
Escrow Benefits Fund or the Escrow Note Fund.
-8-
<PAGE>
(b) Any interest or other income received on such investment and
reinvestment of the Escrow Benefits Fund and the Escrow Note Fund shall be
deemed to be a part of the Escrow Fund.
(c) Federal, state or local taxes, if any, hereafter imposed
upon, asserted or assessed against any income generated from the Escrow Note
Fund or the Escrow Benefits Fund shall be paid by the Sellers. On an annual
basis or at such other times as may be required under applicable provisions of
the Internal Revenue Code and treasury regulations, the Escrow Agent shall
deliver to Sellers' Agent an information return on the appropriate Form 1099
with respect to income generated from the Escrow Note Fund and/or the Escrow
Benefits Fund. Sellers' Agent (and not the Escrow Agent) shall be responsible
for issuing such additional information returns to each of the Sellers as may be
required pursuant to such code and regulations.
9. Fees and Expenses. In consideration for its services hereunder,
-----------------
the Escrow Agent shall be entitled to (i) an annual fee of $1,500 for the first
twelve-month period and $1,000 for each subsequent twelve-month period (or
pro-rata portion for any fraction thereof) commencing on the date hereof through
the earlier to occur of the date of (x) removal of the Escrow Agent, (y)
resignation of the Escrow Agent and (z) termination of this Agreement, in each
case in accordance with the terms and provisions of this Agreement, and (ii)
reimbursement for all reasonable out-of-pocket expenses incurred in connection
with the performance of its duties hereunder (collectively, the "Escrow Agent
------------
Fees"). Upon Buyer's and Sellers' Agent's receipt of written notice from the
- ----
Escrow Agent requesting payment of any such Escrow Agent Fees (which notice
shall be delivered by the Escrow Agent to each of Buyer and Sellers' Agent on a
quarterly basis commencing on the date of this Agreement), Buyer and Sellers'
Agent shall promptly thereafter each pay one-half (50%) of such Escrow Agent
Fees to the Escrow Agent.
10. Termination of Escrow; Distribution of Escrow Fund. The Escrow
--------------------------------------------------
Agent shall hold the Escrow Note Fund until the earlier to occur of (i) June 15,
2004, (ii) the date on which the Note is paid in full and cancelled by the
Escrow Agent pursuant to Section 4(c) hereof, and (iii) the date on which Buyer
delivers written notice to the Escrow Agent terminating this Agreement (the
"Termination Date"). As soon as practicable after the Termination Date, (i) the
----------------
balance, if any, of the Escrow Note Fund (net of any fees and expenses to be
paid to the Escrow Agent under Section 9 hereof) shall be released to Sellers'
Agent and (ii) unless the Note is cancelled under the terms contained herein or
otherwise pursuant to the joint written instructions of Buyer and Sellers'
Agent, the Note, to the extent any principal amount thereof is outstanding,
shall be delivered to Sellers' Agent. Within five (5) business days after the
Outside Employee
-9-
<PAGE>
Termination Date, the Escrow Agent shall terminate the Escrow Benefits Fund and
deliver to Sellers' Agent (after taking into account all disbursement
obligations pursuant to written instructions of Buyer received by the Escrow
Agent on or prior to the Outside Employee Termination Date) any remaining
balance therein.
11. Escrow Agent.
------------
(a) The duties and obligations of the Escrow Agent shall be
determined solely by the express provisions of this Agreement, and the Escrow
Agent shall not be liable except in respect of the performance of such duties
and obligations as are specifically set forth in this Agreement. Unless
specifically agreed to by the Escrow Agent in this Agreement, the Escrow Agent
shall not be bound in any way by any agreement or contract among any of the
parties to this Agreement, including the Stock Purchase Agreement.
(b) The Escrow Agent shall not be responsible in any manner
whatsoever for any failure or inability of Buyer or Sellers' Agent to honor any
of the provisions of this Agreement.
(c) The Escrow Agent shall be fully protected in acting on and
relying upon any written advice, certificate, notice, direction, instruction,
request, or other paper or document which the Escrow Agent in good faith
believes to be genuine (without being required to determine the authenticity or
the correctness of any fact stated therein or the propriety or validity or
service thereof) and to have been signed or presented by the proper party or
parties, and may assume that any Person purporting to give such advice,
certificate, notice, direction instruction or request or other paper or document
has been duly authorized to do so.
(d) The Escrow Agent shall not be liable for any act reasonably
done or step reasonably taken or reasonably omitted by it in good faith or for
any mistake in fact or law, or for anything which it may reasonably do or
refrain from reasonably doing in connection herewith, except its own gross
negligence, bad faith or willful misconduct.
(e) The Escrow Agent may seek the advice of legal counsel in the
event of any dispute or question as to the construction of any of the provisions
of this Agreement or its duties hereunder, and it shall incur no liability and
shall be fully protected in respect of any action taken, omitted or suffered by
it in good faith in accordance with the written opinion of such counsel. If a
controversy arises between one or more of the parties hereto, or between any the
parties hereto and any Person not a party hereto, as to whether or not or to
whom
-10-
<PAGE>
the Escrow Agent shall deliver the Escrow Note Fund or any portion thereof or as
to any other matter arising out of or relating to this Agreement or the Escrowed
Interests deposited hereunder, the Escrow Agent shall not be required to
determine the same and need not make any delivery of the Escrow Note Fund or any
portion thereof but may retain it without liability to anyone until the rights
of the parties to the dispute shall have finally been determined in accordance
with the terms and conditions contained herein, but the Escrow Agent shall be
under no duty whatsoever to institute or defend any such proceedings. The Escrow
Agent shall be entitled to assume that no such controversy has arisen unless it
has received conflicting written notices from the parties to this Agreement.
(f) Buyer and Sellers shall reimburse and indemnify the Escrow
Agent and its members, employees, and agents for, and hold it harmless against
any loss, liability or expense including, but not limited to, reasonable counsel
fees and disbursements incurred without gross negligence, bad faith or willful
misconduct on the part of the Escrow Agent arising out of or in connection with
its acceptance of, or the performance of its duties and obligations under, this
Agreement as well as the costs and expenses of defending against any claim or
liability arising out of or relating to this Agreement. Buyer and Sellers agree
that any amount due under this Section 11(f) shall be borne equally by Buyer, on
the one hand, and Sellers, on the other hand.
(g) The Escrow Agent hereby accepts its appointment and agrees
to act as Escrow Agent under the terms and conditions of this Agreement. By such
acceptance and agreement, however, the Escrow Agent shall not be deemed to have
waived any right with respect to any transaction (other than its service as
Escrow Agent hereunder) between or among it and any other party or parties
hereto.
12. Resignation or Removal of Escrow Agent. The Escrow Agent may
--------------------------------------
resign as such following the giving of sixty (60) days' prior written notice
(the "Resignation Notice") to the other parties hereto. Similarly, the Escrow
------------------
Agent may be removed and replaced following the giving of ten (10) days' prior
written notice (the "Replacement Notice") given jointly by Buyer and Sellers'
------------------
Agent to the Escrow Agent. In either event, the duties of the Escrow Agent
hereunder shall terminate thirty (30) days after the date of (x) receipt by the
Sellers' Agent and by Buyer of the Resignation Notice or (y) receipt by the
Escrow Agent of the Replacement Notice, as applicable. Prior to the termination
of such 60-day or 10-day notice period, as applicable, the Escrow Agent shall
then deliver the balance of the Escrowed Interests then in its possession to a
successor Escrow Agent as shall be appointed by the other parties hereto as
evidenced by a written
-11-
<PAGE>
notice filed with the Escrow Agent. If the Buyer and the Sellers' Agent are
unable to agree upon a successor Escrow Agent or shall have failed to appoint a
successor Escrow Agent prior to the expiration of thirty (30) days following the
date of receipt by the Sellers' Agent and the Buyer of the Resignation Notice or
the date of receipt by the Escrow Agent of the Removal Notice, as applicable,
the then acting Escrow Agent may petition any court of competent jurisdiction
for the appointment of a successor Escrow Agent or other appropriate relief (the
costs and expenses of which shall be jointly borne by Buyer and Seller), and any
such resulting appointment shall be binding upon all of the parties hereto. Upon
acknowledgement by any successor Escrow Agent of the receipt of the then
remaining balance of the Escrowed Interests, the then acting Escrow Agent shall
be fully released and relieved of all duties, responsibilities and obligations
under this Agreement, other than those resulting from the Escrow Agent's
negligence, bad faith or willful misconduct, and the successor Escrow Agent
shall, without further act or deed, succeed to all the rights, duties,
responsibilities and obligations of the predecessor Escrow Agent under this
Agreement.
13. Inspection. All money, the Note or any other property held as
----------
part of the Escrowed Interests or interest, income or proceeds thereon shall at
all times be clearly identified as being held by the Escrow Agent hereunder. Any
party hereto may inspect the Escrowed Interests at any time during the Escrow
Agent's business hours.
14. Notices. Unless otherwise provided herein, any notice,
-------
objection, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
overnight mail, by facsimile transmission or mailed by certified mail, postage
prepaid, return receipt requested (such mailed notice to be effective on the
date such receipt is acknowledged or refused), as follows:
If to Sellers' Agent:
Richard F. Enthoven
5538 Falls Road
Dallas, Texas 75220
Telephone: (214) 373-1708
Facsimile: (214) 373-1708
With a copy to: Strasburger & Price, L.L.P.
901 Main Street, Suite 4300
Dallas, Texas 75202
Attention: Frederick J. Fowler, Esq.
Telephone: (214) 651-4565
Facsimile: (214) 651-4330
-12-
<PAGE>
If to Buyer: Coinmach Corporation
521 East Morehead
Suite 590
Charlotte, NC 28202
Attention: Stephen R. Kerrigan
Telephone: (800) 747-9379
Facsimile: (704) 375-8986
With copies to: Coinmach Corporation
55 Lumber Road
Roslyn, New York 11576
Attention: Robert M. Doyle
Telephone: (800) 924-9603
Facsimile: (516) 484-0905
Anderson Kill & Olick, P.C.
1251 Avenue of the Americas
New York, New York 10020-1182
Attention: Ronald S. Brody, Esq.
Telephone: (212) 278-1258
Facsimile: (212) 278-1733
If to the Escrow Agent:
Merrill Lynch Trust Companies
Employee Benefit Trust Operations
300 Davidson Avenue, 2nd Floor West
Somerset, New Jersey 08873
Attention: Melanie Madeira
Telephone: (908) 627-7862
Facsimile: (908) 627-7699
or to such other address as any party hereto may designate by prior written
notice.
All such notices, objections, requests, instructions, documents and
other communications will (i) if delivered personally to the address as provided
in this Section 14, be deemed given upon delivery, (ii) if delivered by
facsimile transmission to the facsimile number as provided in this Section 14,
be deemed given upon receipt, (iii) if delivered by overnight mail to the
address as provided in this Section 14, be deemed given the next business day
after sent, and (iv) if delivered by mail in the manner described above to the
address as provided in this Section 14, be deemed given upon receipt (in each
case regardless of whether such notice is received by any other Person to whom a
copy of such communication is to be delivered pursuant to this Section 14).
-13-
<PAGE>
15. Entire Agreement; Binding Effect; No Rights of Third Parties.
------------------------------------------------------------
The terms and provisions of this Agreement constitute the entire agreement
between the parties hereto. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective Representatives, heirs,
executors, administrators, successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights or
remedies under or by reason of this Agreement.
16. Modification. This Agreement shall not be amended or modified
------------
except pursuant to an instrument in writing executed by the parties hereto.
17. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the State of North Carolina without regard to
principles of conflict of laws.
18. Miscellaneous. The section headings contained in this Agreement
-------------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. If any term,
condition or provision of this Agreement shall be declared, to any extent,
invalid or unenforceable, the remainder of the Agreement, other than the term,
condition or provision held invalid or unenforceable, shall not be affected
thereby and shall be considered in full force and effect and shall be valid and
be enforced to the fullest extent permitted by applicable law.
19. No Modification of Stock Purchase Agreement. Except as expressly
-------------------------------------------
provided in this Agreement, the rights and obligations of Buyer, Sellers' Agent
and Sellers under this Agreement shall in no way affect their respective rights
and obligations under the Stock Purchase Agreement.
20. Appointment of Sellers' Agent by Sellers. Sellers' Agent hereby
----------------------------------------
represents that Sellers have irrevocably appointed and authorized Sellers' Agent
to act as agent in all respects for each Seller hereunder. Sellers' Agent shall
reimburse and indemnify Buyer and the Escrow Agent, as applicable, and their
respective officers, directors, employees and agents for, and hold each of them
harmless against, any Damages arising out of, in connection with or resulting
from Sellers's Agent acting as agent hereunder for each of the Sellers.
[SIGNATURE PAGE TO FOLLOW]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
on the day and year first above written.
COINMACH CORPORATION
By: ______________________________
John E. Denson
Senior Vice President
MERRILL LYNCH TRUST COMPANY
OF NORTH CAROLINA
By: ______________________________
Name:
Title:
___________________________________
Richard F. Enthoven, in his
capacity as Sellers' Agent
-15-
<PAGE>
SCHEDULE A
----------
LIST OF SELLERS
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr.,
Trustee U/D/T February 4, 1994
-16-
<PAGE>
SCHEDULE 4(D)
-------------
WIRE TRANSFER INSTRUCTIONS
Instructions for Buyer:
- ----------------------
Bank: NationsBank of Texas, N.A.
ABA Number: 111000012
Account Number: 3750330768
Account Name: Solon Concentration
Reference: Coinmach Corporation
Instructions for Sellers' Agent:
- -------------------------------
Bank: Mellon Bank, Pittsburgh, Pennsylvania
ABA Number: 043000261
Credit: Merrill Lynch Account # 101-1730
Further Credit: Richard F. Enthoven and
Tucker F. Enthoven
Account No.: 586-50G39
-17-
<PAGE>
EXHIBIT A
---------
FORM OF MONTHLY REPORT OF ESCROW AGENT
<TABLE>
<CAPTION>
===============================================================================
ENDING
AMOUNT BEGINNING BALANCE
DATE OF DISBURSED BALANCE OF
RECEIPT OF AMOUNT OF FROM OF ESCROW
BENEFITS EXCESS ESCROW ESCROW BENEFITS
PAYMENT COMPENSATION BENEFITS DATE OF BENEFITS FUND
NOTICE PAYMENT FUND DISBURSEMENT FUND
==============================================================================
<S> <C> <C> <C> <C> <C>
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
===============================================================================
</TABLE>
-18-
<PAGE>
EXHIBIT D
FORM OF TAX COOPERATION AGREEMENT
PREAMBLE
--------
This Tax Cooperation Agreement ("Agreement"), dated as of January 8, 1997,
is entered into by and among Kwik Wash Laundries, L.P., a Texas limited
partnership (the "Partnership"), KWL, Inc., a Nevada corporation and sole
general partner of the Partnership (the "GP"), Kwik-Wash Laundries, Inc., a
Nevada corporation and sole limited partner of the Partnership (the "LP" and,
together with the GP, the "Partners"), Coinmach Corporation, a Delaware
corporation (the "Buyer"), and each of the parties listed on Schedule A attached
to this Agreement (each, a "Seller" and, collectively, the "Sellers").
RECITALS
--------
A. The Sellers collectively own all of the issued and outstanding shares
of common stock, par value $.10 per share, of GP (the "GP Stock") and all of the
issued and outstanding shares of common stock, par value $1.00 per share, of LP
(the "LP Stock" and, together with the GP Stock, the "Stock"), constituting all
of the issued and outstanding capital stock of the Partners.
B. The Sellers, the Buyer, the Partners and the Partnership have entered
into a Stock Purchase Agreement, dated as of November 25, 1996 (the "Stock
Purchase Agreement"), relating to the purchase by the Buyer from the Sellers of
all of the Stock.
C. In connection with the purchase of the Stock pursuant to the Stock
Purchase Agreement, the Sellers, the Buyer, the Partners and the Partnership
wish to set forth their agreement with respect to certain tax matters as set
forth below.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. Capitalized terms used herein without definition
-----------
shall have the meanings ascribed to them in the Stock Purchase Agreement. In
the case of a conflict of meanings of such capitalized terms between the Stock
Purchase Agreement and this Agreement, this Agreement shall control.
2. Indemnity by Sellers. Except as otherwise provided in this
--------------------
Agreement, the Sellers shall be liable for, and shall indemnify and hold
harmless the Buyer's Indemnitees from and against, (i) any Taxes that may be
imposed on or incurred by the Partners and/or the Partnership with respect to
all taxable periods ending on or prior to the Closing Date; and (ii) any Taxes
allocated to the Sellers pursuant to Section 3
<PAGE>
hereof. The indemnification described in this Section 2 shall not apply to the
extent of any Taxes (other than United States federal income Taxes) that are
reflected as a current accrued tax liability on the 1996 Balance Sheet.
Anything in this Agreement to the contrary notwithstanding, the indemnification
described in this Section 2 shall be subject to and governed by the provisions
of Article 11 of the Stock Purchase Agreement, with the indemnified amount to be
treated under said Article 11 as Damages incurred by reason of breach of the
representations and warranties in Section 4.24 of the Stock Purchase Agreement.
3. Allocation of Taxes and Tax Items. The Sellers, the Partners,
---------------------------------
the Partnership and the Buyer will, to the extent permitted by applicable law,
elect with the relevant Taxing Authority (as hereinafter defined) or Taxing
Authorities to close any taxable periods of the Partners and the Partnership as
of the Tax Effective Time, as hereinafter defined, and the Parties shall take
all steps, and do all acts and things, including the filing of elections or Tax
Returns with Taxing Authorities, as are or may be reasonably necessary or
appropriate to cause any such period to end as of the Tax Effective Time. In
order to accomplish this result, the Buyer, the Partners and the Partnership
agree, to the extent allowed by applicable law, regulations and rulings, that,
unless the Partnership is dissolved and liquidated on or before March 31, 1997,
the Partnership will change its taxable year to a taxable year ending March 31,
so that the Partnership will experience a taxable year end on March 31, 1997.
For purposes of this Agreement, "Party" shall mean one of the members of the
group consisting of the Sellers, the Partners, the Partnership and the Buyer;
"Parties" shall mean all of the members of such group; "Taxing Authority" shall
mean a federal, local, municipal, state, or other governmental body; and "Tax
Effective Time" shall mean (i) the close of business on the day before the
Closing Date when used with reference to either (a) federal income Taxes, or (b)
state or local income Taxes in the case of each state or local Taxing Authority
imposing an income Tax with respect to which the taxable income or loss of the
Partners is, by reason of the sale of stock to be consummated at the Closing,
determined based on a taxable period ending as of the close of business on the
day before the Closing, or (ii) the close of business on the Closing Date when
used with reference to either (a) all Taxes other than income Taxes, or (b)
state or local income Taxes other than those described in clause (b) of part (i)
of this definition of Tax Effective Time. In any case where applicable law does
not permit the Partnership or one of the Partners to close its taxable period as
of the Tax Effective Time, then Taxes (whether based on income, capital,
ownership of property or otherwise), if any, attributable to the taxable period
of such Party, as applicable, that includes the Tax Effective Time, but does not
end as of the Tax Effective Time, shall be allocated to (i) the Sellers for the
period up to and including the Tax Effective Time (the "Pre-Closing Period"),
and (ii) the Partners and/or the Buyer for the period subsequent to the Tax
Effective Time (the "Post-Closing Period"). For purposes of applying Section
4.24 of the Stock Purchase Agreement to determine the extent to which the Taxes
for all taxable periods ending after the Closing Date are properly attributable
to the portion of any such taxable period ending on the Closing Date, the Taxes
allocated hereunder to the Pre-Closing Period shall be considered to be properly
attributable to the portion of such taxable period ending on the Closing Date,
Tax Cooperation Agreement Page 2
- -------------------------
<PAGE>
and the Taxes allocated hereunder to the Post-Closing Period shall be considered
to be properly attributable to the portion of such taxable period occurring
after the Closing Date. For purposes of this Section 3, the allocation of Taxes
between the Pre-Closing Period and the Post-Closing Period shall be determined
as follows:
(a) In the case of property or ad valorem Taxes or franchise
Taxes (which are not measured by, or based upon, net income), such Taxes for the
Pre-Closing Period and for the Post-Closing Period shall be determined ratably
on an equal per diem basis; and
(b) In the case of (i) other Taxes, including without limitation
income Taxes, and (ii) Tax Items, as hereinafter defined, such other Taxes and
Tax Items shall be determined on the basis of an interim closing of the books of
the Partnership and each of the Partners as of the Tax Effective Time (except
that exemptions, allowances, and deductions for a taxable period that are
calculated on an annual or periodic basis, such as the deduction for
depreciation, shall be apportioned between the Pre-Closing Period and the Post-
Closing Period ratably on an equal per diem basis). For purposes of this
Agreement, "Tax Items" of an entity shall mean the taxable income or loss of
such entity, each item of income, gain, loss or deduction that is a constituent
of such taxable income or loss, and each item of income, gain, loss, deduction
and credit that is required to be separately stated for income tax purposes.
The actual Tax for a taxable period that includes the Tax Effective Time shall
be apportioned between the Pre-Closing Period and the Post-Closing Period in
proportion to the hypothetical Taxes that would result for the Pre-Closing
Period and the Post-Closing Period if each such period were a separate taxable
period, determined without adjustment for the length of the period. Except as
otherwise required by law, where the timing of an item cannot be determined from
the books and records of the Partnership or the Partners, it shall be prorated
in an equitable manner on the basis of the best available evidence. Tax
brackets, fixed statutory deductions and similar items do not require proration
for purposes of this Section 3.
(c) The Change of Control Payments, as well as the federal and
state payroll taxes incurred by the Partnership as a result of making the Change
of Control Payments (collectively, the Change of Control Payments and the
described payroll taxes hereinafter referred to as the "Special Bonus
Payments"), will be claimed as deductions (the "Special Bonus Deductions") for
income tax purposes by the Partnership in the period beginning on January 1,
1997 and ending on the Tax Effective Time (the "1997 Pre-Closing Period"), and
will be included as deductions in determining the Tax Items of the Partnership
that are allocated among the Partners for income tax purposes for the 1997 Pre-
Closing Period. In turn, the taxable income or loss of the Partners for the 1997
Pre-Closing Period will be determined for income tax purposes by including as a
current deduction, deductible by the Partnership during the 1997 Pre-Closing
Period, the aggregate amount of the Special Bonus Payments, so that (i) the
taxable income or loss of the Partners allocated to the Sellers with respect to
the operations of the Partnership for the 1997 Pre-Closing Period will in the
aggregate be determined based on a current deduction being claimed by the
Partnership during the
Tax Cooperation Agreement Page 3
- -------------------------
<PAGE>
1997 Pre-Closing Period equal to the aggregate of the Special Bonus Payments,
and (ii) the aggregate taxable income or loss recognized by the Sellers
resulting from the operations of the Partnership for 1997 will be determined
based on such taxable income being reduced, or if applicable such taxable loss
being increased, by an amount equal to the aggregate of the Special Bonus
Payments. The Parties agree that, anything in this Agreement to the contrary
notwithstanding, (i) the Special Bonus Deductions shall be allocated entirely
to, and claimed as deductions by the Partnership within, the 1997 Pre-Closing
Period, and (ii) neither the Partnership, the Partners nor the Buyer makes any
representations or warranties as to the deductibility to any Party of the
Special Bonus Payments or as to any tax benefits to which any Party may or may
not be entitled as a result of the Partnership making the Special Bonus
Payments. Except as provided in Section 3(d) hereof, the Buyer, the Partnership
and the Partners each agrees not to claim during the Post-Closing Period or any
taxable period occurring thereafter, and the Buyer agrees to cause the
Partnership and/or either or both of the Partners not to claim during the Post-
Closing Period or any taxable period occurring thereafter, any deductions
whatsoever for income tax purposes arising from the payment of the Special Bonus
Payments. Except as provided in Section 3(d) hereof, each of the Parties agrees
not to take a position for income tax purposes, whether on a Tax Return or as a
result of an examination or audit by any Taxing Authority or otherwise, contrary
to the provisions of this Section 3(c).
(d) If for any reason the Sellers are denied deductions for
federal income tax purposes for their respective allocable shares (based upon
the Sellers' respective indirect percentages of ownership of the Partnership) of
the Special Bonus Payments by a Final Determination, as hereinafter defined
(whether such denial occurs by reason of (i) disallowing the Special Bonus
Deductions in whole or in part as deductions to the Partnership during the 1997
Pre-Closing Period, (ii) denying, in whole or in part, the effect of such
deductions on a pass-through basis to the Sellers, or (iii) otherwise), then
subsequent to the date of such Final Determination, but not before such date,
the Partnership, the Partners, and/or the Buyer shall, to the extent of such
disallowance, be entitled to attempt to claim all or any portion of such Special
Bonus Payments as deductions for federal income tax purposes without regard to
the provisions of Section 3(c) hereof. If for any reason the Sellers are denied
deductions for state or local income tax purposes for their respective allocable
shares of the Special Bonus Payments by a Final Determination (whether such
denial occurs by reason of (i) disallowing the Special Bonus Deductions in whole
or in part as deductions to the Partnership during the 1997 Pre-Closing Period,
(ii) denying, in whole or in part, the effect of such deductions on a pass-
through basis to the Sellers, or (iii) otherwise), then subsequent to the date
of such Final Determination, but not before such date, with respect to the
particular state or local income tax involved, the Partnership, the Partners
and/or the Buyer shall, to the extent of such disallowance, be entitled to
attempt to claim all or any portion of the Special Bonus Payments as deductions
for purposes of calculating such state or local income tax without regard to the
provisions of Section 3(c) hereof. In the event the Partnership, the Partners
and/or the Buyer become entitled to attempt to claim all or any portion of the
Special Bonus Payments as deductions as provided in this
Tax Cooperation Agreement Page 4
- -------------------------
<PAGE>
Section 3(d), the Sellers make no representation or warranty as to whether any
such deductions will be allowable to any Party. For purposes of this Agreement,
"Final Determination" shall mean the final resolution of a Seller Tax Issue, as
hereinafter defined, by (i) a decision of the Tax Court or judgment, decree, or
other order by a court of competent jurisdiction, which has become final and
unappealable; (ii) IRS Form 870, 870-AD, 870-L, 870-L(AD), 870-P, 870-P(AD),
870-S, or 870-S(AD) (or any successor forms thereto), on the date of acceptance
by or on behalf of the IRS, or by a comparable agreement form under the laws of
other jurisdictions; except that a Form 870, 870-AD, 870-L, 870-L(AD), 870-P,
870-P(AD), 870-S, or 870-S(AD) or comparable form that reserves the right of the
taxpayer to file a claim for refund and/or the right of the Taxing Authority to
assert a further deficiency shall not constitute a final determination; (iii) a
closing agreement or offer in compromise under Sections 7121 or 7122 of the Code
or under corresponding provisions of any subsequently enacted Federal tax laws,
or comparable agreements under the laws of other jurisdictions; (iv) any
allowance of a refund or credit in respect of any overpayment of tax, including
any related interest or penalties, but only after the expiration of all periods
during which such refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) any other final disposition by reason of the
expiration of the applicable statute of limitations or the expiration of the
period during which a protest may be filed. For purposes of this Agreement, the
final resolution of a "Seller Tax Issue" shall mean the final resolution of the
Tax liability of the Sellers for 1997, the final resolution of the amount of
taxable income or loss of the Partnership allocable among the Partners for the
1997 Pre-Closing Period, or the final resolution of the amount of taxable
incomes or losses of the Partners allocable among the Sellers for 1997.
4. Indemnification by Buyer. Except as otherwise provided in this
------------------------
Agreement, the Buyer shall be liable for, and shall indemnify and hold harmless
the Sellers' Indemnitees from and against, (i) any Taxes arising from any event
occurring on the Closing Date, but after the Closing, which is outside the
ordinary course of the Business, (ii) any Taxes arising from an election or
deemed election, or election imposed by a Taxing Authority, under Section 338 of
the Code (or any comparable provision of state, local or foreign law) with
respect to the purchase of the Stock; (iii) any Taxes that may be imposed on or
incurred by the Partnership or the Partners with respect to all taxable periods
beginning after the Tax Effective Time; (iv) any sales, use, transfer, real
property transfer or gain, stamp, documentary or similar Taxes arising out of or
resulting from any transaction contemplated by the Stock Purchase Agreement; and
(v) any attorneys' fees or other costs incurred by any of Sellers' Indemnitees
thereof in collecting any payment from the Buyer under this Agreement in the
event such payment is not made by the Buyer as provided herein.
5. Tax Refunds. The Buyer agrees to pay (and to cause each of the
-----------
Partners and the Partnership to pay) to the Sellers all refunds of any Taxes for
which the Sellers are liable under Section 2 hereof, but only to the extent such
refund has not been reflected as a receivable on the 1996 Balance Sheet. The
Sellers agree to pay to the Buyer all refunds of any income Taxes imposed on
taxable income or gains allocated to
Tax Cooperation Agreement Page 5
- -------------------------
<PAGE>
the Post-Closing Period pursuant to Section 3 hereof and any other Taxes
allocated to the Post-Closing Period pursuant to Section 3 hereof. The Parties
shall cooperate in order to take all reasonably necessary steps to claim any
such refund. Any such refund received by a Party (considering, for purposes of
this sentence, the Buyer, the Partners and the Partnership as one Party, and the
Sellers as the other Party) or the respective Affiliates of such Party for the
account of the other Party shall be paid to such other Party within thirty (30)
days after such refund is received. For purposes of this Agreement, a refund of
Tax includes the application of an amount otherwise refundable as a reduction of
amounts owed or to be owed.
6. Payment of Taxes. All Taxes with respect to the Partners and the
----------------
Partnership shall be paid to the appropriate Taxing Authority by the Party that
is responsible therefor under the applicable tax law. Except as otherwise
provided in this Agreement, any amount to which a Party is entitled under this
Agreement shall be promptly paid to such Party by the Party obligated to make
such payment following written notice to the Party so obligated stating that the
Taxes to which such amount relates are due and providing details supporting the
calculation of such amount.
7. Tax Returns.
-----------
(a) All Tax Returns that relate to any Taxes of the Partners and
the Partnership shall be prepared and filed by the Party that is legally
responsible therefor.
(b) The Buyer, the Partnership and the Partners each agree that
the Partnership and the Partners shall afford Mr. Richard F. Enthoven, on behalf
of the Sellers, a reasonable opportunity to review its calculations of Tax Items
which are included on all Seller-Affected Tax Returns (as hereinafter defined)
filed after the Closing prior to their inclusion in the applicable Tax Returns.
For purposes of this Agreement, "Seller-Affected Tax Return" shall mean any Tax
Return filed by, or on behalf of, the Partnership or either of the Partners that
includes Tax Items that are allocable, directly or indirectly, between or among
parties that include one or more of the Sellers. An indirect allocation of a
share of a Tax Item to a Seller would include, without limitation, the
allocation of a Tax Item of the Partnership among the Partners that in turn
affects the amount of one or more Tax Items of either or both Partners that is
allocable to such Seller.
(i) With respect to each Tax Return that is a Seller-
Affected Tax Return, the Partnership and each Partner, as applicable, shall
provide the Sellers and their authorized representatives with copies of
such completed Tax Return at least sixty (60) business days prior to the
due date (or the extended due date, if an extension of time for filing has
been obtained) for the filing of such Tax Return, and the Sellers and their
authorized representatives shall have the right to review such Tax Returns,
and the Sellers shall have the right to approve the
Tax Cooperation Agreement Page 6
- -------------------------
<PAGE>
contents of each such Tax Return prior to the filing thereof with the
appropriate Taxing Authority.
(ii) Each Seller-Affected Tax Return to be filed after
Closing shall be prepared (in the absence of (i) a controlling change in
law or circumstances or (ii) consent of the Sellers) consistent with past
practices, elections, accounting methods, conventions and principles of
taxation used for the most recent taxable period for which Tax Returns
involving similar Tax Items have been filed; provided that, anything in
this Agreement to the contrary notwithstanding, each Seller-Affected Tax
Return shall be prepared and filed based on the allocations of Tax Items
between the Pre-Closing Period and the Post-Closing Period as provided in
Section 3 hereof.
(iii) Any disagreement between the Parties (considering, for
purposes of this Section 7(b)(iii), the Buyer, the Partners and the
Partnership as one Party, and the Sellers as the other Party) with respect
to any aspect of the treatment of any Tax Item on a Seller-Affected Tax
Return to be filed after Closing which is not resolved by mutual agreement
of the Parties shall be resolved by a nationally recognized independent
public accounting firm chosen by and mutually acceptable to the Parties
(the"Tax Matters Referee"). Such Tax Matters Referee shall be chosen by
the Parties within ten (10) business days from the date on which one Party
serves written notice on the other Party requesting the appointment of a
Tax Matters Referee, provided that such notice specifically describes the
matters to be considered and resolved by the Tax Matters Referee. For
purposes of the preceding sentence, notice to the Party consisting of the
Sellers may be given by giving notice to Richard F. Enthoven, and notice to
the Party consisting of the Buyer, the Partners and the Partnership may be
given by giving notice to the Buyer. In the event the Parties cannot agree
on the selection of a Tax Matters Referee, then the Tax Matters Referee
shall be the Dallas office of the public accounting firm of Arthur Andersen
LLP. Within twenty (20) days of appointment, the Tax Matters Referee shall
resolve any such disagreements that are specified in the notice; provided
that, in determining its resolution of each disagreement, the Tax Matters
Referee shall be bound by the requirements set forth in Section 7(b)(ii)
hereof for the preparation of Seller-Affected Tax Returns. Any resolution
of an issue submitted to the Tax Matters Referee shall be final and binding
on the parties to this Agreement without further recourse. The Parties
shall share the costs and fees of the Tax Matters Referee equally.
(c) The Sellers and their Affiliates will not take any action to
amend or change the manner in which any Tax Items with respect to the
Partnership or either of the Partners have been reported on any previously filed
Tax Returns; provided, however, the Sellers and their Affiliates shall be
-------- -------
entitled to amend any such Tax Returns in a manner which does not adversely
affect the Buyer or the Affiliates of such Party, and further provided that the
Sellers and their Affiliates may amend Tax Returns to the extent
Tax Cooperation Agreement Page 7
- -------------------------
<PAGE>
required to reflect any adjustment or adjustments made as a result of an audit
or audits by any Taxing Authority.
(d) The Buyer and its Affiliates, including the Partners and the
Partnership, shall cooperate with the Sellers and shall make available all
necessary books and records and timely take all action reasonably necessary to
allow the Sellers and their Affiliates to prepare and file the Tax Returns that
they are responsible for preparing and filing under this Section 7 and to
prepare and file the Tax Returns of the Sellers.
(e) The Buyer, the Partnership, the Partners and their
respective Affiliates will not take any action to amend or change the manner in
which any Tax Items with respect to the Partnership or either of the Partners
have been reported on any Seller-Affected Tax Return.
(f) Richard F. Enthoven is hereby designated as the tax matters
person on the Tax Returns on Form 1120S filed for the Partners for the taxable
period or periods ending on or before the Closing. In the event that Richard F.
Enthoven shall fail or refuse to serve as tax matters person, the Sellers may
designate a person to serve as tax matters person in a writing executed by a
majority of the Sellers.
8. Cooperation in Preparation of Tax Returns. The Buyer, including
-----------------------------------------
without limitation the Partners and the Partnership, and the Sellers shall
cooperate fully with each other and make available to each other such tax data
and other information as may be reasonably required for the preparation by the
Buyer or the Sellers of any Tax Returns required to be prepared and filed by the
Buyer or the Sellers hereunder, as well as Tax Returns required by law to be
filed by Sellers.
9. Tax Audits. In the event the Buyer, either or both of the
----------
Partners, the Partnership or their Affiliates receive written notice (the "Audit
Notice") of any pending Tax audit or assessment which may affect the
determination of Taxes for which the Sellers are or may be liable under Section
2 hereof or pursuant to Section 4.24 of the Stock Purchase Agreement, the Buyer
shall notify the Sellers in writing thereof (the "Buyer Notice") no later than
the earlier of (i) thirty (30) days after the receipt by the Buyer, either or
both of the Partners, the Partnership or their Affiliates of the Audit Notice,
or (ii) ten (10) days prior to the deadline for responding to the Audit Notice.
As to any Taxes covered by such Tax audit or assessment for which the Sellers
are solely liable under Section 2 hereof or Section 4.24 of the Stock Purchase
Agreement, the Sellers shall be entitled at their expense to control or settle
the contest (including the employment of counsel of its choice) of any Tax audit
or administrative or court proceeding relating thereto, provided the Sellers
notify the Buyer in writing (the "Sellers Notice") that they desire to control
such contest no later than the earlier of (a) forty-five (45) days after receipt
of the Buyer Notice, or (b) five (5) days prior to the deadline for responding
to the Audit Notice. The Parties agree that they will cooperate, and cause each
of their respective Affiliates to cooperate, fully with each other and with
their respective counsel in the defense against or compromise of any claim in
any said
Tax Cooperation Agreement Page 8
- -------------------------
<PAGE>
proceeding. Only one Sellers Notice shall be required regarding any pending Tax
Audit or assessment.
10. Exchange of Information; Access to Records.
------------------------------------------
(a) Each Party (considering, for purposes of this sentence, the
Buyer, the Partners and the Partnership as one Party, and the Sellers as the
other Party) will provide, or cause to be provided, to the other Party copies of
all correspondence received from any Taxing Authority by such Party or any of
its Affiliates in connection with the liability of either of the Partners or the
Partnership for Taxes for any period for which such other Party is or may be
liable under Sections 2 or 4 hereof.
(b) The Buyer will, and will cause the Partners and the
Partnership to, (i) cooperate with the Sellers and permit the Sellers to have
full access, at any reasonable time and from time to time, at the business
location at which the books and records of the Partners and the Partnership are
maintained, after the Closing Date, to such Tax data relating exclusively to
either or both of the Partners or the Partnership or to the determination of the
Tax liability of any Seller or Sellers as the Sellers may from time to time
reasonably request, and (ii) gather and furnish, and request the independent
accountants of the Buyer or either or both of the Partners and the Partnership
to gather and furnish, to the Sellers such additional Tax and other information
and documents in the possession of such persons either (i) relating to the
Partnership and/or either or both of the Partners, or (ii) relating to the
determination of the liability for Taxes of any one or more of the Sellers, as
the Sellers may from time to time reasonably request in connection with (a)
preparing or filing any Tax Return or claim for refund, (b) determining a
liability or a right of refund, or (c) conducting or responding to any audit,
investigation or other proceeding, in respect of Taxes for any period for which
the Sellers are or may be liable. Similarly, the Sellers will (i) cooperate with
the Buyer, the Partners and the Partnership and permit the Buyer, the Partners,
and/or the Partnership to have full access, at any reasonable time and from time
to time, at the business location at which the appropriate books and records are
maintained, after the Closing Date, to such Tax data relating exclusively to the
Partnership or to either or both of the Partners in the possession of the
Sellers as the Buyer, the Partners and/or the Partnership may from time to time
reasonably request, and (ii) gather and furnish, and request the independent
accountants of the Sellers to gather and furnish to the Buyer, the Partners
and/or the Partnership such additional Tax and other information and documents
relating to the Partnership and/or either or both of the Partners in the
possession of such persons as the Buyer may from time to time reasonably request
in connection with preparing or filing any Tax Return or claim for refund, in
determining a liability or a right of refund or in conducting or responding to
any audit, investigation or other proceeding, in respect of Taxes for any period
for which the Sellers are or may be liable.
(c) Each Party (considering, for purposes of this sentence, the
Buyer, the Partners and the Partnership as one Party, and the Sellers as the
other Party) agrees that such information and documents relating to the
Partnership and/or either or
Tax Cooperation Agreement Page 9
- -------------------------
<PAGE>
both of the Partners as are, pursuant to the terms of the Stock Purchase
Agreement, in its possession after the Closing, including without limitation
books, records, Tax Returns, claims for refund and all schedules, work papers
and all material records or other documents relating to any such Tax Returns,
claims, audits or other proceedings, shall be preserved and retained until the
close of the twelve (12) month period immediately following the expiration of
the applicable Tax statute of limitations (giving effect to any extension,
waiver or mitigation thereof); provided, however, that, in the event that, prior
-------- -------
to the expiration of such period, (i) a proceeding has been instituted for which
the information or documents may be requested, and (ii) the keeper of such
information or documents is given notice of such proceeding prior to the
expiration of such period, the information or documents shall be retained until
the expiration of the twelve (12) month period immediately following the later
of (a) the final determination with respect to such proceeding, and (b) the date
any obligations with respect thereto are fully satisfied. Each Party
(considering, for purposes of this sentence, the Buyer, the Partners and the
Partnership as one Party and the Sellers as the other Party) shall make such
information and documents available to the other Party or any Affiliate thereof,
and their respective officers, employees and agents, upon reasonable notice and
at reasonable times, it being understood that such representatives shall be
entitled to make copies of any such books and records relating to the Partners,
the Partnership and/or the Tax Items of either or both of the Partners or the
Partnership that affect the Sellers' respective Tax liabilities as they shall
deem necessary. Any information or documents obtained pursuant to this Section
10 shall be kept confidential, except as required by law or legal process or as
may be otherwise necessary in connection with the filing of Tax Returns or
claims for refund or in conducting or responding to any audit, investigation or
other proceeding. Each Party shall provide the cooperation and information and
documents required by this Section 10 at its own expense.
(d) If either Party (considering, for purposes of this Section
10(d), the Buyer, the Partners and the Partnership as one Party, and the Sellers
as the other Party) fails to provide any information or documents requested
pursuant to this Section 10 within a reasonable period, as determined in good
faith by the Party requesting the information or documents, then the requesting
Party shall have the right to engage a public accounting firm to gather such
information or documents, provided that thirty (30) days prior written notice is
given to the unresponsive Party before taking such action. If the unresponsive
Party fails to provide the requested information or documents within thirty (30)
days of receipt of such notice, then such unresponsive Party shall permit the
requesting Party's public accounting firm full access to all appropriate records
or other information or documents as reasonably necessary, and shall reimburse
the requesting Party, or pay directly, all costs connected with the requesting
Party's engagement of the public accounting firm to gather the requested
information or documents.
11. Payment as Purchase Price Adjustment. The Sellers and the Buyer
------------------------------------
agree that any payment made hereunder or pursuant to Article 11 of the Stock
Purchase Agreement will be treated by the Parties on their Tax Returns as an
adjustment to the aggregate Purchase Price for the Stock.
Tax Cooperation Agreement Page 10
- -------------------------
<PAGE>
12. Amendments; Waivers. No provision of this Agreement may be
-------------------
amended, waived or otherwise modified without the prior written consent of the
Sellers and the Buyer. 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 further exercise
thereof or the exercise of any other right, power or privilege hereunder.
13. Binding Effect. This Agreement shall be binding upon and inure
--------------
to the benefit of the Parties and their respective successors and permitted
assigns. 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 the other Parties, and any attempted assignment
without the required consent shall be void; provided, however, that, in the
event the Buyer sells the Stock or one or both of the Partners sell their
interests in the Partnership to a third Party prior to the termination of this
Agreement, (i) such third Party shall be substituted for the Buyer and/or the
selling Partner or Partners hereunder, and (ii) any such sale shall be
conditioned upon such third Party agreeing to be bound by the terms of this
Agreement as applicable to the Buyer and/or the Partners hereunder.
14. Other Actions and Documents. Subject to the provisions hereof,
---------------------------
the Parties hereto shall make, execute, acknowledge and deliver such other
instruments and documents, and take all such other actions, as may be reasonably
requested by another Party in order to effectuate the purposes of this
Agreement.
15. No Third Party Rights. Except as herein otherwise specifically
---------------------
provided, nothing in this Agreement expressed or implied is intended to confer
any right or benefit upon any person, firm, partnership or corporation other
than the Parties and their respective successors and permitted assigns.
16. Changes in Law, Regulation or Interpretation. If, due to any
--------------------------------------------
change in applicable law or regulations or the interpretation thereof by any
court of law or other governing body having jurisdiction subsequent to the date
of this Agreement, performance of any provision of this Agreement or any
transaction contemplated thereby shall become impracticable or impossible, the
Parties hereto shall use their best efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such provision.
17. Costs and Expenses. Except as expressly set forth in this
------------------
Agreement, each Party shall bear its own costs and expenses incurred pursuant to
this Agreement.
18. Counterparts; Headings. This Agreement may be executed in one or
----------------------
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument. The headings in
this Agreement are for convenience of reference only and shall not be deemed a
part of this Agreement.
Tax Cooperation Agreement Page 11
- -------------------------
<PAGE>
19. Severability. The Parties hereby agree that if any provision of
------------
this Agreement should be adjudicated to be invalid or unenforceable, such
provision shall be deemed deleted herefrom with respect, and only with respect,
to the operation of such provision in the particular jurisdiction in which such
adjudication was made, and only to the extent of the invalidity, and any such
invalidity or unenforceability in a particular jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. All other
remaining provisions of this Agreement shall remain in full force and effect for
the particular jurisdiction and all other jurisdictions.
20. Entire Agreement. This Agreement and the Stock Purchase
----------------
Agreement contain the entire agreement between the Parties with respect to the
subject matter hereof. Any tax indemnity, sharing, allocation or similar
agreements, arrangements, or practices between the Sellers and any Affiliates
thereof, on one hand, and either of the Partners and/or the Partnership, on the
other hand, are hereby terminated, and all rights and duties thereunder are
hereby extinguished, effective as of the Closing Date, and no such agreements,
arrangements or practices shall be or shall have been entered into or
implemented thereafter, except as provided in this Agreement or the Stock
Purchase Agreement. Except as provided herein, this Agreement shall not create
any rights in any person other than the Parties to this Agreement.
21. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York without giving effect to
conflicts of law principles thereof.
22. Notices. Any notices required hereunder shall be given as
-------
provided in the Stock Purchase Agreement, provided that notice given to the
Buyer shall be deemed to be notice also to each of the Partners and the
Partnership.
23. Survival of Obligations. Notwithstanding anything in this
-----------------------
Agreement or the Stock Purchase Agreement to the contrary, this Agreement shall
remain in effect and its provisions shall survive for the full period of all
applicable statutes of limitation (giving effect to any extension, waiver or
mitigation thereof), plus six (6) months; provided, however, that in the event
a claim is brought against one or more of the Sellers, the Buyer, either or both
of the Partners, or the Partnership in respect of any item of Tax within the
applicable survival period, the rights and obligations under this Agreement with
respect thereto shall survive the expiration of such period until such claim is
finally resolved and any obligations with respect thereto are fully satisfied.
24. Good Faith Clause. The Parties agree to cooperate in good faith
-----------------
and to take all reasonable steps to carry out the terms and the intent of this
Agreement.
25. Buyer's Commitment Regarding Obligations of Partnership and
-----------------------------------------------------------
Partners. The Buyer agrees to cause each Partner and the Partnership to perform
- --------
all of their respective obligations under this Agreement applicable to the time
period following the Closing.
Tax Cooperation Agreement Page 12
- -------------------------
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement on
the date first above written.
KWL, INC.
By: _____________________________
Name: _______________________
Title: ______________________
KWIK-WASH LAUNDRIES, INC.
By: _____________________________
Name: ______________________
Title: _____________________
KWIK WASH LAUNDRIES, L.P.
By: _____________________________
Name: ______________________
Title: _____________________
COINMACH CORPORATION
By: _____________________________
Name: ______________________
Title: _____________________
SELLERS:
__________________________________
Tamara Lynn Ford
__________________________________
Robert Kyle Ford
Tax Cooperation Agreement Page 13
- -------------------------
<PAGE>
__________________________________
Traci Lea Ford
__________________________________
Tucker F. Enthoven
__________________________________
Richard F. Enthoven
__________________________________
Richard Franklin Ford, Jr.
Trustee U/D/T February 4, 1994
Tax Cooperation Agreement Page 14
- -------------------------
<PAGE>
SCHEDULE A
TO TAX COOPERATION AGREEMENT
Shareholders in KWL, Inc.:
- -------------------------
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr., Trustee U/D/T Feb. 4, 1994
Shareholders in Kwik-Wash Laundries, Inc.:
- -----------------------------------------
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr., Trustee U/D/T Feb. 4, 1994
Schedule A Page 1 of 1
- ----------
<PAGE>
EXHIBIT E
FORM OF CONSULTING SERVICES AGREEMENT
-------------------------------------
CONSULTING SERVICES AGREEMENT ("Agreement"), dated as of January __, 1997,
---------
by and between Richard Enthoven ("Enthoven") and Coinmach Corporation, a
--------
Delaware corporation ("Coinmach").
--------
WHEREAS, Coinmach has entered into that certain Stock Purchase Agreement,
dated as of even date herewith, pursuant to which Coinmach has acquired all of
the capital stock of each of KWL, Inc., a Nevada corporation and sole general
partner of Kwik-Wash Laundries, L.P. (the "Partnership"), and Kwik-Wash
-----------
Laundries, Inc., a Nevada corporation and sole limited partner of the
Partnership;
WHEREAS, Coinmach desires to continue the business of the Partnership which
includes, among other things, (i) providing coin-operated and non-coin operated
laundry equipment services to customers in multi-family dwellings, (ii)
operating, maintaining and servicing laundromat retail stores, and (iii) the
sale and distribution of laundry equipment parts (the foregoing, together with
all other businesses, activities, divisions and operations of the Partnership
and their respective affiliates other than the business, activities and
operations of Titlelink, the "Business");
--------
WHEREAS, Enthoven was the former President and Chief Executive Officer of
the Partnership and is generally knowledgeable about the Business;
WHEREAS, in an effort to provide for an effective and successful transition
of ownership of the Business, Coinmach desires to receive certain advisory and
management consulting services from Enthoven relating to the Business and to
obtain the benefit of Enthoven's experience in managing and operating the
Business; and
WHEREAS, subject to the compensation arrangements and other provisions set
forth in this Agreement, Enthoven is willing to provide to Coinmach certain
advisory and management consulting services related to the Business;
NOW, THEREFORE, in consideration of the foregoing promises and the
respective agreements hereinafter set forth and the mutual benefits to be
derived herefrom and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Enthoven and Coinmach hereby agree as
follows:
1. Engagement. Coinmach hereby engages Enthoven to provide certain
----------
advisory and management consulting services related to the Business, and
Enthoven hereby agrees to provide to Coinmach certain advisory and management
consulting services related to the Business, in each case on the terms and
subject to the conditions set forth in this Agreement.
<PAGE>
2. Term. This Agreement shall have an initial term of six months year,
----
commencing on the date hereof (the "Initial Term"). After the Initial Term,
------------
this Agreement shall automatically renew for successive one month periods (each
such renewal period and the Initial Term, collectively, the "Engagement Period")
-----------------
and shall remain in full force and effect, unless sooner terminated by either
party upon thirty (30) calendar days prior written notice.
3. Duties. Enthoven hereby agrees during the Engagement Period to
------
consult with Coinmach in such manner and on such business and financial matters
as may be reasonably requested from time to time by Coinmach, including, but not
limited to, advisory matters in connection with (i) the servicing and
maintenance of route leases pursuant to which the Partnership provides laundry
equipment services in the course of the Business; (ii) the maintenance and
operation of retail laundromat stores in the course of the Business; (iii) the
preservation and development of Coinmach's relationships with customers and
suppliers of the Partnership and other third parties involved in the operation
of the Business; and (iv) the financial condition of the Business and any tax
and accounting matters related thereto. Enthoven agrees to render services to
Coinmach conscientiously and to devote reasonable efforts and abilities thereto
at such times and in such reasonable manner as Coinmach and Enthoven shall
mutually agree, it being acknowledged and agreed among the parties that
Enthoven's services shall be on a non-exclusive basis and shall be performed at
such places and at such times as are reasonably agreed upon between Enthoven and
Coinmach; provided, however, that, notwithstanding the foregoing, Enthoven shall
-----------------
be required to devote no greater than 20 hours per week to his services
hereunder.
4. Compensation, Benefits and Expenses.
-----------------------------------
(a) CONSULTING FEE. From and after the date hereof and during
the Engagement Period, Coinmach shall pay to Enthoven a monthly consulting fee
(the "Consulting Fee") in an amount equal to the lesser of (x) an amount equal
--------------
to the product of the number of hours worked by Enthoven during such month
multiplied by $250 (fractions of an hour to be accounted for in tenths of an
hour) and (y) an amount equal to the product of the number of days during which
services were performed by Enthoven during such month multiplied by $800;
provided, however, that (i) with respect to any given month during the
- -------- -------
Engagement Period, Enthoven shall not be entitled to a Consulting Fee in an
amount in excess of $15,000 and (ii) as a condition precedent to the payment of
a Consulting Fee hereunder, Enthoven shall provide to Coinmach, within five
calendar days after the end of each month, a written summary (the "Summary")
-------
setting forth in reasonable detail: (i) the total number of hours (which hours
shall include any hours expended in connection with any travel time required
hereunder) worked for the month and on a daily basis; and (ii) a brief
description of the nature and scope of the services performed. Coinmach shall
have the right in its reasonable discretion to dispute all or any portion of the
Summary and to adjust the amount of any Consulting Fee related thereto.
<PAGE>
The Consulting Fee shall be payable within 30 days after the submission by
Enthoven of the Summary as herein provided; provided, however, that, if this
-------- -------
Agreement is terminated by either party, Enthoven shall be entitled to a
Consulting Fee as calculated above in respect of any services performed during
the period commencing on the first day of the month in which this Agreement is
terminated through and including the date of termination.
(b) BENEFITS. During the Engagement Period, Enthoven shall not
be entitled to any benefits of any kind presently or hereafter granted to other
employees of Coinmach, including, without limitation, any retirement, medical,
stock option, incentive compensation or disability insurance programs.
(c) EXPENSES. Except as otherwise provided in this Agreement,
Coinmach shall promptly reimburse Enthoven for such reasonable travel and other
out-of-pocket fees and expenses actually incurred by Enthoven in connection with
the rendering of services under this Agreement and accounted for and evidenced
in accordance with the standard policies, practices or procedures regarding
expense reimbursement that Coinmach may establish from time to time.
5. Engagement Representation. Enthoven represents and warrants to
-------------------------
Coinmach that he is under no contractual, fiduciary or other restriction or
obligation which is inconsistent with the execution of this Agreement, the
performance of his duties or obligations hereunder, or the rights of Coinmach
hereunder.
6. Confidential Information. Enthoven acknowledges that the
------------------------
information, observations and data obtained by Enthoven during the course of
Enthoven's performance under this Agreement concerning the Business and the
business and affairs of Coinmach or any of Coinmach's affiliates will be the
property of such entities. Therefore, Enthoven agrees that he will not disclose
to any unauthorized person or entity or use for the account of any person or
entity other than Coinmach, any such information, observations or data
including, without limitation, any business secrets or methods, policies,
manuals or instructions, reports, lists of names of customers or suppliers,
personnel information, pricing information or any other confidential or
proprietary information of Coinmach or the Partnership or any of their
respective affiliates or related parties (collectively, "Confidential
------------
Information") without Coinmach's prior written consent, unless and to the extent
- -----------
that the aforementioned matters become generally known to and available for use
by the public other than as a result of Enthoven's acts or omissions to act and
except as required by law or legal process. Additionally, the parties hereto
will not, without the prior written consent of the other party hereto, disclose
to any person or entity either the existence of this Agreement or any of the
terms, conditions or agreements contained herein.
<PAGE>
7. Independent Contractor Status. Enthoven and Coinmach agree that
-----------------------------
Enthoven shall perform services hereunder as an independent contractor,
retaining control over and responsibility for his own operations and personnel.
Neither Enthoven nor Enthoven's affiliates, partners, agents or related parties
shall be considered employees or agents of Coinmach as a result of this
Agreement, nor shall any of them have authority to contract in the name of or
bind Coinmach, except as expressly agreed to in writing by Coinmach.
8. Notices. Any notice, report or payment required or permitted to
-------
be given or made under this Agreement by one party to the other party shall be
deemed to have been duly given or made if personally delivered (including by
courier) or, if mailed, when mailed by registered or certified mail, postage
prepaid, to the other party at the following addresses (or at such other address
as shall be given in writing by one party to the other party):
If to Enthoven:
Richard Enthoven
Telephone:
Facsimile:
If to Coinmach:
Coinmach Corporation
521 East Morehead, Suite 590
Charlotte, North Carolina 28202
Attention: Stephen R. Kerrigan
Telephone: (800) 747-9379
Facsimile: (704) 375-8986
9. Choice of Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
10. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement, or breach thereof, shall be settled by arbitration in New
York, New York or such other location agreed to by the parties and in accordance
with the rules of the American Arbitration Association. The controversy or
claim shall be submitted to three neutral arbitrators: (a) one to be chosen by
Coinmach, (b) a second to be chosen by Enthoven, and (c) a third to be selected
by the two arbitrators chosen by Coinmach and Enthoven. To the extent permitted
by the rules of the American Arbitration Association, the selected arbitrators
may grant equitable relief. Judgment upon any proper award rendered by the
arbitrators may be
<PAGE>
entered in any court having jurisdiction thereof. Each party shall pay the fees
of the arbitrator selected by him and of his own attorneys, and the expenses of
his witnesses and all other expenses connected with the presentation of his
case. The costs of the arbitration including the cost of the record or
transcripts thereof, if any, administrative fees, and all other fees and
expenses shall be shared equally by Coinmach and Enthoven. Notwithstanding
anything to the contrary in the preceding sentence, the arbitrators shall be
permitted to order the unsuccessful party to pay the reasonable legal fees of
the successful party, if the arbitrators find that the unsuccessful party
asserted a claim or defense under this Agreement in bad faith.
11. Survival. The covenants, agreements, representations, and
--------
warranties contained in or made pursuant to this Agreement shall survive the
termination of this Agreement, irrespective of any investigation made by or on
behalf of any party.
12. Responsibility for Taxes. It is understood that Enthoven shall
------------------------
be solely responsible for any taxes that become due, if any, in connection with
any compensation or other benefits Enthoven receives in connection with this
Agreement.
13. Waiver of Breach. The waiver by either party of a breach of any
----------------
provision of this Agreement by the other party shall not operate or be construed
as a waiver of any subsequent breach of that provision or any other provision
hereof.
14. Amendment. This Agreement may be amended only by an instrument
---------
in writing executed by the parties hereto that expressly states that it is the
intention of each of the parties to amend this Agreement. Commencement or
continuation of any custom, course of dealing, practice or usage by Coinmach
shall not constitute an amendment hereof or otherwise give rise to enforceable
rights or create obligations of Coinmach.
15. Entire Agreement. This Agreement contains the complete and
----------------
entire understanding and agreement of Enthoven and Coinmach with respect to the
subject matter hereof and supersedes all prior and contemporaneous
understandings, conditions and agreements, oral or written, express or implied,
respecting the engagement of Enthoven in connection with the subject matter
hereof.
16. No Third-Party Beneficiaries. Except as provided in Section 19
----------------------------
below, this Agreement does not create, and shall not be construed as creating,
any rights enforceable by any person not a party to this Agreement.
17. Assignment. Neither Enthoven nor Coinmach may assign its rights
----------
or obligations under this Agreement without the express written consent of the
other party.
<PAGE>
18. Successors and Assigns. The provisions of this Agreement shall
----------------------
be binding upon and inure to the benefit of Enthoven and his heirs and personal
representatives, and shall be binding upon and inure to the benefit of Coinmach
and its successors and assigns.
19. Severability. If any provision of this Agreement or portion
------------
thereof is held invalid, illegal, void or unenforceable by reason of any rule of
law, administrative or judicial provision or public policy, all other provisions
of this Agreement shall nevertheless remain in full force and effect.
20. Headings. The headings contained herein are for the convenience
--------
of reference only and are not intended to define, limit, expand or describe the
scope or intent of any provision of this Agreement.
21. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
* * * * *
<PAGE>
IN WITNESS WHEREOF, Enthoven and Coinmach have caused this Agreement to be
duly executed and delivered on the date and year first above written.
COINMACH CORPORATION
By: ______________________________
Name:
Title:
__________________________________
Richard Enthoven
<PAGE>
EXHIBIT TO THE STOCK PURCHASE AGREEMENT
EXHIBIT F
List of Certain Personnel
Rich Enthoven
Kyle Ford
Robert E. Bailey
Stanley Scott
Rebecca Pirkle
Linda Russell
Gordon Dunaway
Donnette Goheen
Vernon Fuller
<PAGE>
SCHEDULE A
----------
LIST OF SELLERS
Tamara Lynn Ford
Robert Kyle Ford
Traci Lea Ford
Tucker F. Enthoven
Richard F. Enthoven
Richard Franklin Ford, Jr.,
Trustee U/D/T February 4, 1994
<PAGE>
SCHEDULE 1.1(A)
Kwik Wash Laundries, Inc. and KWL,Inc.
Combined Balance Sheets
(In thousands, except par value and share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
-------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 764 $ 1,369
Trade and nontrade receivables, less allowance
of $20 in 1995 and $23 in 1994 457 283
Notes receivable (Note 2) 197 214
Inventory 753 757
Prepaid expenses 45 109
-------------------
Total current assets 2,216 2,732
Fixed assets, at cost:
Store equipment 11,370 10,908
Route equipment 28,907 27,359
Vehicles 2,659 2,485
Other 7,639 6,718
-------------------
50,575 47,470
Accumulated depreciation 39,184 36,559
-------------------
Net fixed assets 11,391 10,911
Other assets:
Notes receivable (Note 2) 1,941 265
Prepaid location fees (Note 4) 11,417 10,417
Investment in equity investee (Note 5) 1,042 -
Intangibles (net) and other assets (Note 6) 2,659 4,606
-------------------
Total other assets 17,059 15,288
-------------------
Total assets $30,666 $28,931
===================
</TABLE>
2
<PAGE>
SCHEDULE 1.1(B)
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Financial Statements
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Financial Statements
Years ended December 31, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors...................................... 1
Audited Financial Statements
Combined Balance Sheets............................................. 2
Combined Statements of Income and Retained Earnings................. 4
Combined Statements of Cash Flows................................... 5
Notes to Combined Financial Statements.............................. 6
Selected Financial Data
Combined Schedules of Income and Retained Earnings.................. 13
Combined Schedules of Cash Flows - Investing Activities............. 14
</TABLE>
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Board of Directors and Stockholders
Kwik Wash Laundries, Inc. and KWL, Inc.
We have audited the accompanying combined balance sheets of Kwik Wash Laundries,
Inc., and KWL, Inc. (the Company), as of December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Kwik Wash Laundries,
Inc., and KWL, Inc., at December 31, 1995 and 1994, and the combined results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the combined
financial statements taken as a whole. The combined schedules of income and
retained earnings and the combined schedules of cash flows - investing
activities included in the selected financial data section are presented for
purposes of additional analysis and are not a required part of the combined
financial statements. Such information, except for that portion marked
"unaudited" on which we express no opinion, has been subjected to the auditing
procedures applied in our audit of the combined financial statements and, in our
opinion, is fairly stated in all material respects in relation to the combined
financial statements taken as a whole.
ERNST & YOUNG LLP
March 27, 1996
1
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Balance Sheets
(In thousands, except par value and share amounts)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
--------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 764 $ 1,369
Trade and nontrade receivables, less allowance
of $20 in 1995 and $23 in 1994 457 283
Notes receivable (Note 2) 197 214
Inventory 753 757
Prepaid expenses 45 109
--------------------
Total current assets 2,216 2,732
Fixed assets, at cost:
Store equipment 11,370 10,908
Route equipment 28,907 27,359
Vehicles 2,659 2,485
Other 7,639 6,718
--------------------
50,575 47,470
Accumulated depreciation 39,184 36,559
--------------------
Net fixed assets 11,391 10,911
Other assets:
Notes receivable (Note 2) 1,941 265
Prepaid location fees (Note 4) 11,417 10,417
Investment in equity investee (Note 5) 1,042 -
Intangibles (net) and other assets (Note 6) 2,659 4,606
--------------------
Total other assets 17,059 15,288
--------------------
Total assets $30,666 $28,931
====================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 660 $ 857
Accrued liabilities 2,674 2,725
Income taxes payable (Note 8) 3 331
Deferred income taxes (Note 8) 57 85
------------------------
Total current liabilities 3,394 3,998
Note payable (Note 10) 6,200 5,500
Deferred income taxes (Note 8) 109 143
------------------------
Total liabilities 9,703 9,641
Commitment and contingencies (Note 9)
Stockholders' equity (Note 11):
Common stock:
Kwik Wash Laundries, Inc. - $1 par value:
Authorized shares - 500,000
Issued and outstanding shares - 54,675 55 55
KWL, Inc. - $.10 par value:
Authorized shares - 100,000
Issued and outstanding shares - 54,675 5 -
Paid-in capital 925 180
Retained earnings 19,978 19,055
------------------------
Total stockholders' equity 20,963 19,290
------------------------
Total liabilities and stockholders' equity $30,666 $28,931
========================
</TABLE>
See accompanying notes.
3
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Statements of Income and Retained Earnings
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
--------------------------
<S> <C> <C>
Revenues:
Laundry route receipts $42,400 $40,569
Laundry store receipts 21,020 20,574
Miscellaneous 437 613
--------------------------
Total revenues 63,857 61,756
Operating costs expenses:
Route commission expenses 17,255 16,603
Laundry operating expenses 21,160 21,161
Depreciation and amortization 8,841 8,822
Sales, general and administrative expenses 4,995 5,276
--------------------------
Total operating costs and expenses 52,251 51,862
--------------------------
Income from operations 11,606 9,894
Other income (expense):
Interest and finance charge income 161 253
Loss on sales of operating units and investment (229) (26)
Equity in losses of equity investee (458) -
Interest expense (465) (510)
--------------------------
Total other income (expense) (991) (283)
--------------------------
Income before income taxes 10,615 9,611
Income taxes (Note 8) 354 436
--------------------------
Net income 10,261 9,175
Retained earnings at beginning of period 19,055 29,844
Less cancelation of treasury shares (Notes 11) - 14,066
Less distributions to stockholders 9,338 5,898
--------------------------
Retained earnings at end of period $19,978 $19,055
==========================
</TABLE>
See accompanying notes.
4
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $10,261 $ 9,175
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation 5,134 5,009
Amortization of contracts and intangibles 3,707 3,813
Equity in losses of equity investee 458 -
Deferred income taxes (62) (99)
Gains on sales of assets (140) (168)
Changes in operating assets and liabilities:
Trade and nontrade receivables (174) 7
Inventory 4 (47)
Prepaid expenses 64 109
Other assets 539 (415)
Accounts payable, trade (197) 371
Accrued liabilities (379) 282
----------------------------------
Net cash provided by operating activities 19,215 18,037
INVESTING ACTIVITIES
Purchases of fixed assets (5,483) (4,737)
Prepaid location fees (2,978) (2,907)
Notes receivable (1,659) 2,647
Investment in equity investee (1,500) -
Purchases of assets from acquisition (568) -
Payment for covenant not to compete - (1,250)
Proceeds from sales of assets 256 324
----------------------------------
Net cash used in investing activities (11,932) (5,923)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 17,300 14,100
Proceeds from issuance of common stock 750 -
Cash paid to redeem common stock - (14,310)
Distributions to stockholders (9,338) (5,898)
Repayment of long-term debt (16,600) (8,600)
----------------------------------
Net cash used in financing activities (7,888) (14,708)
----------------------------------
Net decrease in cash and cash equivalents (605) (2,594)
Cash and cash equivalents at beginning of year 1,369 3,963
----------------------------------
Cash and cash equivalents at end of year $ 764 $ 1,369
==================================
</TABLE>
See accompanying notes.
5
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements
December 31, 1995 and 1994
1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION -- During 1995, Kwik Wash Laundries, Inc. (Kwik Wash) and
KWL, Inc., a newly-formed corporation (KWL), formed Kwik Wash Laundries, L.P., a
limited partnership (the Partnership), which became the successor in interest to
substantially all of Kwik Wash's assets and liabilities. Kwik Wash holds a 99%
limited partnership interest in the Partnership and KWL holds a 1% general
partnership interest. These three entities are collectively referred to as the
Company. The financial statements for 1995 contain the combined accounts of Kwik
Wash, KWL and their 100% interest in the Partnership, while those for 1994
contain the accounts for Kwik Wash only. Intercompany accounts and transactions
have been eliminated in the combination.
DESCRIPTION OF OPERATIONS -- The Company's principal business activity is the
ownership and management of its own coin-operated laundries located in stores
and multifamily housing communities primarily in Texas, Louisiana, Oklahoma,
Arkansas and Mississippi.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORY -- The inventory of parts and supplies is stated at the lower of cost
or market, using the moving average cost method.
DEPRECIATION -- Depreciation is calculated on either the straight-line or
declining balance methods on all depreciable assets over their estimated useful
lives of four to ten years. Depreciation expense includes the net book value of
junked equipment and miscellaneous disposed equipment.
INTANGIBLE ASSETS -- Intangible assets are recorded at cost and are amortized
using the straight-line method over their estimated useful lives.
BAD DEBTS -- The Company uses the reserve method in providing for bad debts.
FINANCE CHARGE INCOME -- Deferred finance charges are recognized as income over
the term of each note on the straight-line basis.
6
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS - The indirect method has been used in the preparation
of the statement of cash flows. The Company defines cash as cash-in-hand, cash
in demand deposit accounts and cash equivalents with original maturities of
three months or less.
2. NOTES RECEIVABLE
Notes receivable represent installment obligations due from purchasers of
various operating units and extensions of credit to affiliated parties. The
trade notes are secured by the equipment purchased and are net of any add-on
finance charges. The notes with affiliated parties are secured by real estate.
Notes receivable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------------
<S> <C> <C>
Purchasers of operating units $ 336,635 $660,683
Affiliated parties 1,881,602 -
Less add-on finance charges 80,434 181,815
-------------------------
Net amount due 2,137,803 478,868
Amount due in one year 196,497 214,008
-------------------------
Net long-term $1,941,306 $264,860
=========================
</TABLE>
3. ACQUISITIONS
During the year ended December 31, 1995, the Company acquired a laundry route
that included route equipment and intangible assets for cash in the aggregate
amount of $567,608. The purchase price of the 1995 route acquisition was
allocated to equipment ($249,968), laundry room contracts ($307,640) and
covenants not to compete ($10,000).
On April 4, 1995, Kwik Wash was issued seven shares of the common stock, $0.01
par value per share, of Ford Coin Laundries, Inc. (FCL), at a cost to Kwik Wash
of $10,000 per share. These shares, together with three shares issued to Kwik
Wash's stockholders (the Stockholders), represented 100% of FCL's issued common
stock. The Stockholders acquired their three shares with $30,000 in cash that
was distributed by Kwik Wash to them for that purpose.
7
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
3. ACQUISITIONS (CONTINUED)
On April 4, 1995, FCL entered into a Stock Purchase Agreement with SAS
Acquisitions Inc. (SAS), a subsidiary of The Coinmach Corporation, whereby FCL
issued one thousand shares of its nonvoting Class A common stock, $0.01 par
value per share, to SAS for $11,400 per share.
On April 4, 1995, FCL acquired substantially all of the outstanding capital
stock of Solon Automated Services, Inc. (Solon), for a cost of $11,500,000.
On April 4, 1995, FCL, Kwik Wash, the Stockholders and SAS entered into a
letter agreement (the Agreement) whereby SAS received an option (the Option) to
purchase all the shares of FCL's common stock from Kwik Wash and the
Stockholders for a cash purchase price of $100,000. On April 28, 1995, SAS
exercised its Option and the purchase transaction was closed on the same date.
Also under the terms of the Agreement, SAS received an option (the Put) to cause
Solon to sell to Kwik Wash any and all of Solon's business locations,
properties, and assets operated by Solon's Dallas and Houston regions (the Texas
Assets) for a purchase price of $44,653,800. The Put was exercisable at any time
during the six-month period commencing April 4, 1995. SAS did not exercise the
Put. Under the terms of the agreement, SAS and Kwik Wash each have no further
obligation to the other, except SAS's obligation to pay over a twelve-month
period (which commenced October 4, 1995) to Kwik Wash and the Stockholders,
certain of their out-of-pocket costs directly incurred in connection with FCL's
acquisition of Solon.
4. PREPAID LOCATION FEES
Route location fees paid to secure apartment leases are capitalized and
amortized over the life of the related lease, usually over periods of 60 to 120
months. Amortization expense for location fees was $1,980,996 and $1,964,663 in
1995 and 1994, respectively.
5. INVESTMENT IN EQUITY INVESTEE
The investment in equity investee represents the Company's 30% equity interest
in TitleLink, L.C., a privately-owned developmental stage limited liability
corporation which developed a communications product for the real estate title
industry. The investment is accounted for at cost less the Company's equity in
TitleLink's loss since
8
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
5. INVESTMENT IN EQUITY INVESTEE (CONTINUED)
the date of acquisition. Under the investment agreement, the Company is
allocated substantially all of TitleLink's losses financed by the Company's
investment. As of December 31, 1995, TitleLink's equity was approximately
$1,080,000.
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------------
<S> <C> <C>
Laundry room contracts $5,962,745 $5,655,105
Less accumulated amortization 5,341,610 5,033,387
--------------------------------
621,135 621,718
Covenants not to compete, net 1,968,750 3,375,498
Deposits and other assets 68,917 608,797
--------------------------------
Total intangible and other assets $2,658,802 $4,606,013
================================
</TABLE>
Intangibles are amortized over their estimated useful lives of two to five
years. Amortization expense was $1,725,764 and $1,848,281 in 1995 and 1994,
respectively.
7. PROFIT SHARING PLAN
The Company maintains a profit sharing plan, which includes provisions meeting
the guidelines of Section 401(k) of the Internal Revenue Code. The plan covers
all employees meeting certain minimum entry requirements, as allowed by law. The
Company's contribution to the plan is voluntary and the Company has accrued plan
contributions of $504,569 and $499,981 in 1995 and 1994, respectively.
8. INCOME TAXES
Kwik Wash previously converted from a C corporation to a Subchapter S
corporation under the Internal Revenue Code of 1986. KWL is also a Subchapter S
corporation. For federal income tax purposes, the Company's income is taxed
directly to the stockholders with the exception of the corporate level built-in
gains tax. During a ten year recognition period, this corporate level tax is
imposed on the sale or exchange of assets that were held by Kwik Wash on the
date of its Subchapter S election.
9
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
8. INCOME TAXES (CONTINUED)
The Company's deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The Company's
deferred tax assets and liabilities at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Total deferred tax assets $ - $ -
Total deferred tax liabilities 166,374 228,475
--------------------------
Net deferred tax liability $ (166,374) $ (228,475)
==========================
</TABLE>
The Company's deferred tax liabilities relate to net built-in gains expected to
be recognized during the ten-year recognition period.
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------
<S> <C> <C>
Current:
Federal $ 62,205 $135,147
State 354,148 400,067
--------------------------
416,353 535,214
Deferred:
Federal (62,101) (99,381)
--------------------------
Total income tax provision $354,252 $435,833
==========================
</TABLE>
Cash paid for income taxes during the year ending December 31, 1995 and 1994 was
$744,119 and $553,262, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Company's operations are conducted from leased premises, which include 10
offices/warehouses and 150 laundry stores. Generally, these leases are for
various periods of from one to ten years and are renewable at the option of the
Company. Six of the offices/warehouses and 22 of the laundry stores are leased
from various partnerships whose partners include the majority stockholders of
the Company.
10
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Total rent expense for 1995 was $3,576,919, of which $886,135 was with related
parties. In 1994, the total rent expense was $3,484,793, of which $870,962 was
with related parties. Aggregate minimum rentals in the succeeding years are as
follows:
<TABLE>
RELATED
OTHERS PARTIES TOTAL
-------------------------------------------
<S> <C> <C> <C>
1996 $1,993,294 $ 829,932 $ 2,823,226
1997 1,641,122 833,393 2,474,515
1998 1,322,878 871,464 2,194,342
1999 1,014,528 871,464 1,885,992
2000 620,830 798,842 1,419,672
Thereafter 684,617 - 684,617
-------------------------------------------
Total $7,277,269 $4,205,095 $11,482,364
===========================================
</TABLE>
The Company is a party to various claims, legal actions and complaints arising
in the ordinary course of business. In the opinion of management, all such
matters are without merit or are of such nature, or involve such amounts, that
an unfavorable disposition would not have a material effect on the financial
position or results of operations of the Company. In addition, the Company is
the guarantor for notes payable of an affiliate in the aggregate amount of
$2,667,790 at December 31, 1995.
10. NOTE PAYABLE
In November, 1995, the Company entered into a new $32,000,000 loan agreement
with a single bank that extends to September 30, 2000. This agreement replaced
an existing loan agreement, which was to mature on December 15, 2000. Under the
new loan agreement, the Company has an unsecured reducing line of credit of
$20,000,000 (Facility A Commitment), and an unsecured term loan of $12,000,000
(Facility B Commitment). The Company had aggregate advances under the Facility A
Commitment of $6,200,000 outstanding at December 31, 1995. There were no
aggregate advances under the Facility B Commitment outstanding at December 31,
1995. On each quarterly date commencing December 30, 1997, the Facility A
Commitment shall be reduced by $1,000,000. On each quarterly date commencing
June 30, 1996, the Facility B Commitment shall be reduced by $600,000. No net
repayments are due as long as the amounts outstanding are below the current
Facility A and Facility B Commitments. Advances under both the Facility A and
Facility B Commitments bear interest at varying rates based (at the Company's
11
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Notes to Combined Financial Statements (Continued)
10. NOTE PAYABLE (CONTINUED)
option) on the Bank's prime rate or the London Interbank Offering Rate. At
December 31, 1995, the interest rates on outstanding borrowings ranged from
7.25% to 8.5%. The loan agreement contains affirmative and negative covenants,
including restrictions on future borrowings, and requires that the Company meet
certain financial ratios. Cash paid for interest was $456,827 and $504,627 for
1995 and 1994 respectively.
Subsequent to the balance sheet date, on January 3, 1996, the Company borrowed
$12,000,000 on the Facility B Commitment. This amount was distributed to the
stockholders as a dividend.
11. STOCK REDEMPTION AND STOCKHOLDER AGREEMENTS
On November 15, 1993, Kwik Wash exercised its Call Option pursuant to the terms
of a Put and Call Agreement entered into with a stockholder to purchase all of
the stockholder's common stock (56,923 shares) for $251.40 per share. On January
31, 1994, Kwik Wash purchased the 56,923 shares pursuant to the Put and Call
Agreement. Such treasury shares were subsequently canceled on February 1, 1994,
and returned to the status of authorized and unissued common stock. The
cancelation of the treasury shares was accounted for by reducing common stock by
$56,923, paid-in capital by $187,334, and retained earnings by $14,066,185.
On January 31, 1994, in consideration for a payment of $1,250,000, Kwik Wash
entered into a five-year noncompete and nondisclosure agreement with the
stockholder whose shares were redeemed on that date.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's notes receivable from purchasers of
operating units, notes receivable from affiliated entities and borrowings under
its long term note payable approximate their fair value.
12
<PAGE>
SELECTED FINANCIAL DATA
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Schedules of Income and Retained Earnings
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(UNAUDITED)
-------------------------------------------
<S> <C> <C> <C>
Revenues:
Laundry route receipts $42,400 $40,569 $38,275
Laundry store receipts 21,020 20,574 19,744
Miscellaneous 437 613 534
-------------------------------------------
Total revenues 63,857 61,756 58,553
Operating costs expenses:
Route commission expenses 17,255 16,603 15,653
Laundry operating expenses 21,160 21,161 21,747
Depreciation and amortization 8,841 8,822 8,934
Sales, general and administrative expenses 4,995 5,276 4,484
-------------------------------------------
Total operating costs and expenses 52,251 51,862 50,818
-------------------------------------------
Income from operations 11,606 9,894 7,735
Other income (expense):
Interest and finance charge income 161 253 287
Gain (loss) on sales of operating units and investment (229) (26) 599
Equity in losses of equity investee (458) - -
Interest expense (465) (510) (64)
-------------------------------------------
Total other income (expense) (991) (283) 822
-------------------------------------------
Income before income taxes 10,615 9,611 8,557
Income taxes 354 436 1,998
-------------------------------------------
Net income 10,261 9,175 6,559
Retained earnings at beginning of period 19,055 29,844 23,777
Less cancelation of treasury shares - 14,066 492
Less distributions to stockholders 9,338 5,898 -
-------------------------------------------
Retained earnings at end of period $19,978 $19,055 $29,844
===========================================
</TABLE>
13
<PAGE>
Kwik Wash Laundries, Inc. and KWL, Inc.
Combined Statements of Income and Retained Earnings
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
(UNAUDITED)
-------------------------------------------
<S> <C> <C> <C>
Purchases of fixed assets $ (5,483) $(4,737) $ (4,579)
Prepaid location fees (2,978) (2,907) (2,616)
Notes receivable (1,659) 2,647 (2,010)
Investment in equity investee (1,500) - -
Purchases of assets from acquisitions (568) - (1,372)
Payment to stockholder for covenant
not to compete - (1,250) -
Proceeds from sales of assets 256 324 533
-------------------------------------------
Net cash used in investing activities $(11,932) $(5,923) $(10,044)
===========================================
</TABLE>
14
<PAGE>
SCHEDULE 6.3
STOCK PURCHASE AGREEMENT SCHEDULE 6.3
ASSETS TO BE DISTRIBUTED
On or before the Closing Date the following assets will be distributed from the
Partnership:
VEHICLE DESCRIPTION TEXAS LICENSE NO.
- ----------------------- -----------------
1995 Chevorlet Suburban NY 8789
1994 Acura Legend NTG 85T
1995 Toyota Camry RCN 74P
1994 Toyota Camry MYP 32F
1993 Toyota Land Cruiser JKT 81W
1994 Toyota Land Cruiser NKM 61S
1995 Toyota Camry RCN 51F
1996 Toyota Camry WGV 58M
1994 Toyota Camry MDF 73V
FURNITURE AND FIXTURES:
- -----------------------
All furniture and accessories located in the offices of the six officers of KWL,
Inc. which consists of:
6 - Executive Desks
6 - Standard Executive Credenzas
6 - Executive swivel chairs
22 - side chairs
4 - wood lateral files
4 - wood bookcases
6 - wood computer tables
2 - wood small conference tables
2 - fabric couches
2 - lamps
2 - glass top tables
1 - fabric chair
various desk top and other accessories
COMPUTER EQUIPMENT:
- -------------------
6 - Apple MacIntosh Computers per attached listing
6 - Printers per attached listing
<PAGE>
KWIK WASH LAUNDRIES, L.P.
MACINTOSH AND PRINTER VALUES
AS OF 9/30/96
<TABLE>
<CAPTION>
Item Serial Number Serial Number Date Accum Market
Number on Item Entered in P&E Acquired Cost Depr. NBV Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RICHARD ENTHOVEN
- ----------------
Quadra Mac (Including Monitor) 0
DeskWriter Printer 0
---------------------
0 0 0 500
================================
KYLE FORD
- ---------
Quadra Mac (Including Monitor) 03549411 XB3506QY12V SXB3506QY1 3/31/94 1,930 1,233 697
DeskWriter Printer 03175092 3002A19312 3002A19312 8/31/92 918 918 0
---------------------
2,848 2,151 697 500
================================
ART MILLER
- ----------
Duo Dock 230 Mac (Including Monitor) (A) 03549445 FC330DNLC78 SFC2420R5C 3/31/94 2,575 1,645 930
DeskWriter Printer 03549541 3336S28695 3336S28696 3/31/94 313 200 113
---------------------
2,888 1,845 1,043 500
================================
DAVID COUCH
- -----------
Quadra Mac (Including Monitor) 03583512 XB43316C2DQ SXB43316C2DQ 11/11/94 1,864 984 880
DeskWriter Printer 03470841 3315S33655 3315S33655 5/17/93 379 279 100
---------------------
2,243 1,263 980 500
================================
</TABLE>
Notes: (A) The serial number in the P&E system is the S/N for a Duo Dock Model
210. The model 210's on hand were traded (thru Compulize) for model
230's, but the S/N's were never updated
<PAGE>
KWIK WASH LAUNDRIES, L.P.
MACINTOSH AND PRINTER VALUES
AS OF 9/30/96
<TABLE>
<CAPTION>
Item Serial Number Serial Number Date Accum Market
Number on Item Entered in P&E Acquired Cost Depr. NBV Value
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BOB BAILEY
- ----------
Duo Dock 210 Mac (Including Monitor) 03461531 MFC24219CC75 FC2450A6C75 12/21/92 2,772 2,162 610
Personal Lazer Writer 320 - Apple 03549605 CA34998T1GJ SCA34998T1 3/31/94 955 610 345
---------------------
3,727 2,772 955 500
================================
SKIP GRAVES
- -----------
Quadra Mac (Including Monitor) 03549381 XB3506UG12V SXB3506UG1 3/31/94 2,013 1,286 727
DeskWriter Printer 03549541 3336S28696 3336S28696 3/31/92 313 200 113
---------------------
2,326 1,486 840 500
================================
</TABLE>
<PAGE>
SCHEDULE 8.16
SCHEDULE 8.16
KWIK WASH LAUNDRIES, L.P.
SCHEDULE OF LAUNDROMAT LEASES WITH RELATED PARTIES
RENTAL RATE, TERM, & OPTION SCHEDULE
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY
RENTAL RENTAL RENTAL
BRANCH STORE # STORE ADDRESS PRIMARY RENTAL TERM AS OF 10/96 1/97 - 12/97 1/98 - 12/01
- ---------- --------- ------------------------- ------------------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dallas 16 7020 FAIR OAKS, DALLAS 1/01/97 - 12/31/01 $1,458.00 1,458.00 1,531.00
Dallas 20 1169 PEAVY RD., DALLAS 1/01/97 - 12/31/01 $1,998.00 1,998.00 2,098.00
Dallas 26 440 W. DAVIS, DALLAS 1/01/97 - 12/31/01 $1,300.00 1,300.00 1,365.00
Dallas 45 2415 AZLE AVE. FT. WORTH 1/01/97 - 12/31/01 $1,250.00 1,250.00 1,313.00
Dallas 51 1800 N. SYLVANIA, FT. WORTH 1/01/97 - 12/31/01 $1,250.00 1,250.00 1,313.00
Dallas 52 7007 WOODWICK DR. DALLAS 1/01/97 - 12/31/01 $2,400.00 2,400.00 2,520.00
Dallas 56 13970 JOSEY LN. FARMER'S BR. 1/01/97 - 12/31/01 $1,950.00 1,950.00 2,048.00
Dallas 60 131 N. BECKLEY, DALLAS 1/01/97 - 12/31/01 $900.00 900.00 945.00
Austin 1 2100 S. LAMAR, AUSTIN 1/01/97 - 12/31/01 $1,690.00 2,000.00 2,100.00
Austin 3 1925 GASTON PLACE, AUSTIN 1/01/97 - 12/31/01 $1,300.00 1,300.00 1,365.00
Austin 6 2209 S. CONGRESS, AUSTIN 1/01/97 - 12/31/01 $1,931.00 1,931.00 2,028.00
Austin 15 8901 N. LAMAR, AUSTIN 1/01/97 - 12/31/01 $872.00 872.00 916.00
Austin 38 5405 S. PlEASANT VLY., AUSTIN 1/01/97 - 12/31/01 $1,200.00 1,200.00 1,260.00
San Antonio 5 5211 S. FLORES, S.A. 1/01/97 - 12/31/01 $1,200.00 1,200.00 1,260.00
San Antonio 7 1217 PAT BOOKER RD., UNIVERSAL 1/01/97 - 12/31/01 $1,308.00 1,308.00 1,373.00
San Antonio 8 311 E. PARK, S.A. 1/01/97 - 12/31/01 $1,638.00 1,638.00 1,720.00
San Antonio 11 1314 W.W.WHITE., S.A 1/01/97 - 12/31/01 $1,300.00 1,300.00 1,365.00
San Antonio 18 930 W. FORMOSA, S.A 1/01/97 - 12/31/01 $1,100.00 1,100.00 1,155.00
San Antonio 21 9207 S. ZARZAMORA, S.A. 1/01/97 - 12/31/01 $1,254.00 1,254.00 1,317.00
San Antonio 26 1100 S. PRESA RD., S.A. 1/01/97 - 12/31/01 $1,200.00 1,200.00 1,260.00
San Antonio 35 1519 W. SOUTHCROSS, S.A. 1/01/97 - 12/31/01 $1,700.00 1,700.00 1,785.00
Corpus 3 9709 S. PADRE ISLAND DR., C.C. 1/01/97 - 12/31/01 $1,000.00 1,000.00 1,050.00
Corpus 5 2118 GOLIHAR, C.C. 1/01/97 - 12/31/01 $1,700.00 1,700.00 1,785.00
$32,899.00 $33,209.00 $34,872.00
========== ============== ===========
<CAPTION>
KWL
OPTION OPTION PRIMARILY LESSOR
BRANCH TERM RENTAL RATE RESPONSIBLE AS OF 10/31/98
- ------------ ----------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Dallas 1/1/02 - 12/31/06 1,684.00 NO CEDAR CREEK
Dallas 1/1/02 - 12/31/06 2,308.00 NO GRANITE
Dallas 1/1/02 - 12/31/06 1,502.00 YES FORD REALTY
Dallas 1/1/02 - 12/31/06 1,444.00 YES FORD REALTY
Dallas 1/1/02 - 12/31/06 1,444.00 YES FORD REALTY
Dallas 1/1/02 - 12/31/06 2,772.00 YES FORD REALTY
Dallas 1/1/02 - 12/31/06 2,253.00 YES FORD REALTY
Dallas 1/1/02 - 12/31/06 1,040.00 YES S & F REALTY
Austin 1/1/02 - 12/31/06 2,310.00 NO GRANITE
Austin 1/1/02 - 12/31/06 1,502.00 YES WF REALTY
Austin 1/1/02 - 12/31/06 2,231.00 YES AUSTIN S W
Austin 1/1/02 - 12/31/06 1,008.00 YES AUSTIN S W
Austin 1/1/02 - 12/31/06 1,386.00 NO GRANITE
San Antonio 1/1/02 - 12/31/06 1,386.00 YES S & F REALTY
San Antonio 1/1/02 - 12/31/06 1,510.00 YES S & F REALTY
San Antonio 1/1/02 - 12/31/06 1,892.00 YES FORD REALTY
San Antonio 1/1/02 - 12/31/06 1,502.00 YES WF REALTY
San Antonio 1/1/02 - 12/31/06 1,271.00 YES WF REALTY
San Antonio 1/1/02 - 12/31/06 1,449.00 NO FORD REALTY
San Antonio 1/1/02 - 12/31/06 1,386.00 YES FORD REALTY
San Antonio 1/1/02 - 12/31/06 1,964.00 YES S & F REALTY
Corpus 1/1/02 - 12/31/06 1,155.00 YES GRANITE
Corpus 1/1/02 - 12/31/06 1,964.00 YES S & F REALTY
$38,363.00
===========
</TABLE>
RELATED PARTY LAUNDROMAT LEASES:
NOTES: 1) The rent shown for all buildings is the triple-net portion only.
Additional rent may apply for taxes, insurance, and common area
maintenance.
KWL Primarily Responsible: This indicates which property
maintainance clause to use in the lease addendum. Yes - Tenant does
own maintenance. No - Landlord does maintenance and bills
tenants(s).
2) Austin store #1 is projected to be purchased by Granite Chief
Realty from Bank One Management Corporation by 11/30/96. If the
property is not purchased prior to closing, the existing lease
(Expires 5/97) will apply.
3) Option shown is for all laundromat leases simultaneously.
<PAGE>
SCHEDULE 8.17
KWIK WASH LAUNDRIES, L.P.
SCHEDULE OF FACILITIES LEASES WITH RELATED PARTIES
RENTAL RATE, TERM, & OPTION SCHEDULE
<TABLE>
<CAPTION>
MONTHLY MONTHLY MONTHLY
RENTAL RENTAL RENTAL
BRANCH PROPERTY ADDRESS PRIMARY RENTAL TERM AS OF 10/96 1/97-12/97 1/98-12/00
- ---------- -------------------------- -------------------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Houston 903 CROSS TIMBERS, HOUSTON 1/01/97 - 3/31/97 $1,800.00
Austin 3601 DIME CIRCLE, AUSTIN 1/01/97 - 11/30/00 $3,600.00 3,600,00 3,780.00
San Antonio 12831 COGBURN, S.A. 1/01/97 - 11/30/00 $8,800.00 8,800.00 9,240.00
Corpus Christi 55446 KOSTORYZ, C.C. 1/01/97 - 11/30/00 $2,554.00 2,554.00 2,682.00
Shreveport 430 W. 67TH ST., SHREVEPORT, LA 1/01/97 - 11/30/00 $2,675.00 2,675.00 2,809.00
TOTAL RELATED PARTY FACILITIES LEASES $19,429.00 $17,629.00 $18,511.00
============= ================ ================
<CAPTION>
KWL
OPTION OPTION PRIMARILY LESSOR
BRANCH TERM RENTAL RATE RESPONSIBLE AS OF 10/96
- ---------- ------------------ ------------- ----------- --------------
<S> <C> <C> <C> <C>
Houston Month to Month YES FORD REALTY
Austin 1/1/02 -12/31/06 4,158.00 NO FORD REALTY
San Antonio 1/1/02 -12/31/06 10,164.00 YES COMMERCIAL
Corpus Christi 1/1/02 -12/31/06 2,950.00 YES FORD REALTY
Shreveport 1/1/02 -12/31/06 3,090.00 YES J&D REALTY
TOTAL RELATED PARTY FACILITIES LEASES $20,362.00
=============
</TABLE>
NOTES: 1) The rent shown for all buildings is the triple-net portion only.
Additional rent may apply for taxes, insurance, and common area
maintenance.
KWL Primarily Responsible: This indicates which property
maintenance clause to use in the lease addendum. Yes -
Tenant does own maintenance. No - Landlord does maintenance and
bills tenant(s).
2) Option shown is for each building separately.
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Amendment") dated
as of January 8, 1997, is entered into by and among Kwik Wash Industries, L.P.,
a Texas limited partnership (the "Partnership"), KWL, Inc., a Nevada corporation
and sole general partner of the Partnership (the "GP"), Kwik-Wash Laundries,
Inc., a Nevada corporation and sole limited partner of the Partnership (the "LP"
and, together with the GP, the "Partners"), Coinmach Corporation, a Delaware
corporation (the "Buyer"), and each of the undersigned individuals each a
"Seller" and, collectively, the "Sellers".
RECITALS
A. Sellers, the Partners, the Partnership and Buyer entered into that
certain Stock Purchase Agreement, dated as of November 25, 1996 (the "Stock
Purchase Agreement"), pursuant to which the Sellers agree, on the terms and
conditions contained in the Stock Purchase Agreement, to sell the Stock of the
Partners to Buyer.
B. Sellers, the Partners, the Partnership and Buyer desire to amend the
Stock Purchase Agreement as provided in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
accuracy of which are hereby acknowledged, the parties hereto agree as follows:
1. Defined Terms. Each term used in this Amendment shall have the
-------------
meaning given to such term in the Stock Purchase Agreement unless otherwise
defined herein.
2. Amendment of Definition of 1996 Liabilities. Section 2.3(b)(i)(E) of
--------------------------------------------
the Stock Purchase Agreement is hereby amended to read in its entirety as
follows:
(E) "1996 Liabilities" shall mean the net amount of all current
liabilities of the Partners on the 1996 Balance Sheet as determined in
accordance with generally accepted accounting principles; provided,
--------
however, that, for purposes of this Agreement, "1996 Liabilities"
-------
shall not include (1) the current portion of notes payable arising out
of real estate transactions and only to the extent not in connection
with the Business or (2) the current portion of Indebtedness arising
out of the certain credit agreement entered into between NationsBank
and the Partnership which in accordance with the
<PAGE>
requirements of generally accepted accounting principles which would
otherwise be required to be included in current liabilities of the
Partners on the 1996 Balance Sheet.
3. Reaffirmation of the Stock Purchase Agreement. The Stock Purchase
----------------------------------------------
Agreement, as amended by this Amendment, shall continue in full force and effect
in accordance with its terms.
4. Governing Law. This Amendment shall be construed and enforced in
-------------
accordance with the laws of the State of New York without regard to principles
of conflict of laws.
5. Counterparts. This Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
(THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.)
- 2 -
<PAGE>
IN WITNESS WHEREHOF, the Parties have executed this Amendment, or have
caused this Amendment to be duly executed on their behalf by their respective
officers thereunto duly authorized, as of the day and year first above written.
COINMACH CORPORATION
By: /s/ John E. Denson
---------------------------
Name: John E. Denson
Title: Senior Vice President
KWIK WASH LAUNDRIES, L.P.
By: /s/ Richard F. Enthoven
----------------------------
Name: Richard F. Enthoven
Title: President of KWL,
Inc., General Partner
of Kwik Wash Laundries,
L.P.
KWL, INC.
By: /s/ Richard F. Enthoven
----------------------------
Name: Richard F. Enthoven
Title: President
KWIK-WASH LAUNDRIES, INC.
By: /s/ Dan DeGeus
----------------------------
Name: Dan DeGeus
Title: President
/s/ Tamara Lynn Ford
----------------------------
Tamara Lynn Ford
- 3 -
<PAGE>
/s/ Robert Kyle Ford
------------------------------
Robert Kyle Ford
/s/ Traci Lea Ford
------------------------------
Traci Lea Ford
/s/ Tucker F. Enthoven
------------------------------
Tucker F. Enthoven
/s/ Richard F. Enthoven
------------------------------
Richard F. Enthoven
/s/ Richard Franklin Ford, Jr.
------------------------------
Richard Franklin Ford, Jr.
Trustee U/D/T February 4, 1994
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-28-1997 MAR-28-1997
<PERIOD-START> SEP-28-1996 MAR-30-1996
<PERIOD-END> DEC-27-1996 DEC-27-1996
<CASH> 2,3581 23,581
<SECURITIES> 0 0
<RECEIVABLES> 6,491 6,491
<ALLOWANCES> 0 0
<INVENTORY> 6,642 6,642
<CURRENT-ASSETS> 0 0
<PP&E> 13,2438 132,438
<DEPRECIATION> 35,584 35,584
<TOTAL-ASSETS> 273,707 273,707<F1>
<CURRENT-LIABILITIES> 0 0
<BONDS> 203,982 203,982
<COMMON> 51,732 0
0 51,732
0 0
<OTHER-SE> (24,073) (24,073)
<TOTAL-LIABILITY-AND-EQUITY> 273,707 273,707
<SALES> 0 0<F2>
<TOTAL-REVENUES> 48,759 143,205
<CGS> 0 0
<TOTAL-COSTS> 32,886 96,482<F3>
<OTHER-EXPENSES> 11,996 35,771<F5>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,004 18,146
<INCOME-PRETAX> (2,127) (7,194)
<INCOME-TAX> (700) (2,300)<F4>
<INCOME-CONTINUING> (1,427) (4,894)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,427) (4,894)<F6>
<EPS-PRIMARY> (.14) (.56)
<EPS-DILUTED> 0 0
<FN>
Coinmach Laundry Corporation and Subsidiaries
<F1> Total Assets:
Includes Advance Rental Payments of $23,633, Contract Rights of $61,019, and
Goodwill of $42,588, each net of accumulated amortization, at December 27, 1996.
<F2> Sales:
Total Revenues include Sales of laundromats and equipment of $5,769 and $14,941,
for the 3 months and 9 months ended December 27, 1996, respectively.
<F3> Cost of Goods Sold:
Total Costs include Cost of Goods Sold of $4,139 and $10,597, for the 3 months
and 9 months ended December 27, 1996, respectively.
<F4> Income Tax:
The provision (benefit) for income taxes consists of $100 and $250 currently
payable and ($800) and ($2,300) deferred, for the 3 months and 9 months ended
December 27, 1996, respectively.
<F5> Stock-based compensation charge:
A stock-based compensation charge was recorded of $460 and $1,920 for the 3
month and 9 month periods ended December 27, 1996.
<F6> Net Income:
In addition, EBITDA (earnings before deductions for interest, income taxes,
depreciation and amortization) of $43,453 (before the deduction for the stock-
based compensation charge), was generated for the reported period. EBITDA is
used by management and certain investors as an indicator of a company's
historical ability to service debt.
</FN>
</TABLE>
